After a hectic few years in which every Budget seemed to be full of nothing but payroll-related change, this one was different.
There were no rabbits pulled out of hats or any great giveaways; not surprising given the stubbornly low productivity of the workforce and the continuing uncertainty surrounding our exit from the European Union. This was a ‘steady as she goes’ Budget that built on previous Budgets while omitting the more controversial proposals.
However, there were a few payroll-related matters and below are some of the more significant ones.
Tax rates and thresholds
Personal Allowance and tax rate thresholds
As has become customary in the Budget, the Personal Allowance has increased. For the tax year 2018-19, it will rise to £11,850, a £350 increase, giving each tax-paying individual an extra £70 per annum in their pay packet.
The other change announced was the Higher Rate Threshold, which increased in line with the Consumer Price Index (CPI) measure of inflation from £33,500 to £34,505.
National Minimum Wage
Minimum wage rates have increased by more than inflation, with the biggest percentage increase applied to the Apprentice Rate (5.7%). From 1 April 2018, the hourly rates will be:
- £7.83: for workers aged over 25 (National Living Wage)
- £7.38: 21 – 24-year-olds
- £5.90: 18 – 20-year-olds
- £4.20: 16 – 17-year-olds
- £3.70: for apprentices under 19 or in the first year of the apprenticeship
These rates were proposed by the Low Pay Commission and accepted in full by the government.
The Marriage Allowance was also subject to amendment. In this case, the rules will be revised to allow claims to be made where a partner died before the claim is made. The claim can be backdated by up to four years.
National Insurance contributions (NICs)
As previously announced, Class 2 NICs and reforms to the NICs treatment of termination payments and sporting testimonials have been postponed. They will now be scheduled for April 2019. This is to ensure that there is enough time to consult with stakeholders on the reform process.
Also previously announced, the proposed increase in Class 4 NICs will no longer happen.
Evidence has come to light that some employers are abusing the Employment Allowance, often by using offshore arrangements, to avoid paying the correct amount of NICs. To rectify this, from 2018 an upfront security deposit will be required from those employers identified as having avoided paying the correct amount in this way.
For tax year 2018-19 the Lifetime Allowance has been increased by CPI to £1,030,000.
Life assurance and overseas pensions schemes
From April 2019, where an employee nominates an individual or registered charity to be their beneficiary, then tax relief for employer-paid premiums will be available.
Expenses and benefits in kind
From April 2018, the provision of electricity for electric cars that are charged at the employer’s workplace will not give rise to a Benefit in Kind.
Is this sign that the government ‘really means business’ when dealing with air pollution?
Employee business expenses
The Chancellor outlined several changes to the taxation of employee expenses.
- 2018 will see a new government consultation on extending the scope of tax relief on work-related training costs that is currently available to employees and the self-employed.
- From April 2019, employers will no longer need to check employees’ receipts when reimbursing subsistence expenses if benchmark scale rates are used.
- HMRC is looking to improve guidance on employee travel and subsistence expenses and the process of claiming tax relief on non-reimbursed employment expenses. HMRC will work with external stakeholders in this endeavour.
For the payroll practitioner, any clarity and reduction in the administrative burden is welcome.
There will be an increase of 1% in the diesel supplement for cars. This will take the diesel supplement from 3% to 4% and come into force from April 2018. It will apply to diesel cars registered on or after 1 January 1998 that do not comply with the Real Driving Emissions Step 2 (RDE2) standard. The supplement will not apply to diesel hybrids or to vehicles other than cars.
From April 2020, the government will cease using CO2 emissions figures based on the current NEDC test system and will instead use figures from the WLTP test system that was introduced September 2017.
The value of the multiplier for calculating the cash equivalent of the fuel benefit for a car will increase to £23,400 for 2018-19.
For tax year 2018-19, where a van is made available for private use by an employee the cash equivalent for calculating the fuel benefit will increase to £3,350. And the flat rate charge for the fuel benefit will be £633.
Tax compliance and administration
Making Tax Digital
Finance (No 2) Act 2017 is currently making its way through Parliament. Within the legislation are the thresholds and timescales for the implementation of Making Tax Digital (MTD). MTD will become mandatory for businesses with a turnover at or above the VAT threshold of £85,000 from April 2019. The earliest date for the rollout of MTD to businesses below the VAT threshold is April 2020.
Late submission penalties and late payment interest
Modernising the current system of penalties and late payment interest was another area where future reform was announced. To make the process simpler and to harmonise the schemes, a new points-based system will be implemented.
Security deposit legislation
The Finance Bill 2018-19 will include the expansion of the security deposit legislation to include Construction Industry Scheme (CIS) deductions. This is to enable the collection of debt in cases of insolvency; there will be a consultation on the implementation process.
It was widely expected that the off-payroll working rules for the public sector would be extended to cover the private sector. This was mentioned as a possible next step. The government intends to consult on tackling non-compliance in the private sector, taking into account the experience of the public sector reforms.
The process of improving and effectively using the apprenticeship levy is ongoing and the government is working with employers to ensure that it supports productivity across the country.
Taylor Review of Modern Working Practices
Part of the government’s response to the recent Taylor Review of Modern Working Practices will be a discussion paper considering the case and various options for making the employment status tests for employment rights and tax clearer, in consultation with stakeholders.
Following the Budget, payroll practitioners can, for once, give a sigh of relief. We already have a lot of change scheduled from previous Budgets to work through so the lack of new payroll-related initiatives is welcome. All in all, it could have been a lot worse.
About Terri Bethel
Terri is lead technical material author for the Chartered Institute of Payroll Professionals.