Getting to grips with payroll changes

George Osborne said in his budget introduction that this budget was not to be a tax raising one but that it was also not to be a giveaway, the result being ‘a fiscally neutral budget.’                      

One of the government’s key aims, he stated, is to make it easier for businesses to employ individuals and to continue working on reducing the burdensome red tape of regulation.
Announcements to help young people included funding additional work experience and apprenticeship places and an expansion to the University Technical Colleges programme to establish at least 24 new colleges. There was good news for the construction industry and first time home buyers alike as from the proceeds of the bank levy, £250m will be provided to help 10,000 first time buyers to purchase a brand new property. The government will also provide equity loans, jointly funded with house-builders. There was not such good news for the non domiciled as the annual charge is being increased from £30,000 to £50,000 for those who have been in this country for 12 or more years; however if they invest in UK business there will be certain tax reliefs available to them.  
It was great to hear that £100million will be given to local authorities to help repair the potholes our severe winter caused. Judging by the state of the roads, certainly north of the border, I really don’t think £100million is going to be enough. Fuel duty has thankfully gone down, AMAPs (Approved Mileage Allowance Payments) have at last gone up, the 50p tax is apparently temporary, Corporation tax is to go down, Income tax and NICs alignment is up for consultation – and the list goes on. So let’s take a closer look at some of the areas that affect our profession.

Tax Reliefs

The Office of Tax Simplification (OTS) had previously recommended the abolishment of 47 tax reliefs. The chancellor announced the government’s agreement to abolishing 43 of those which in turn removes about 100 pages from tax legislation. It sounds a lot but is really only a drop in the ocean when you consider there are over a thousand tax reliefs and only 159 of them were actually reviewed. There is therefore still a lot of work to be done in this area.
Some of the reliefs that are going have now become obsolete, such as the millennium gift aid and the payroll giving ten per cent supplement. Others will be abolished next year after a period of consultation.  Whether this will be a public consultation we don’t know, but they include:
•    the provision of meals on cycle to work days
•    late night taxis for non-business travel
•    the daily relief on the first 15p
    for luncheon vouchers.
The OTS also recommended abolishing contracting out tax relief for all pension schemes but this hasn’t been confirmed. As previously announced contracting out tax rebates paid to occupational schemes are set to be scrapped for defined contribution schemes in 2012.

Integration of NICs and PAYE

A key area for payroll is the ongoing simplification of the tax system and as indicated in the review of tax reliefs the issue of the complexity of tax and National Insurance Contributions, albeit not a new subject, will now formally be addressed through a public consultation on the options for merging the two. The chancellor did say that the purpose is not to increase taxes but to simplify processes. An implementation date was not announced, just that this would take a number of years to complete but one would assume that it will be in this parliament.  

Moratorium for Small Businesses

One announcement was a moratorium for small business, aka ‘exemption’. The government plan to drop some existing proposals for specific regulations which would have cost business over £350 million a year. One of these is to introduce an exemption for micro-businesses and start up businesses from ‘new domestic regulation’ for three years from the 1 April 2011; however there was no detail in the 104 page budget as to what exactly this refers to.
The department for Business Innovation and Skills did announce recently that they are looking for small businesses to be exempt from having to produce two set of accounts and there were also announcements about plans to remove workers’ rights to request time off for training at companies with fewer than 250 staff, and to scrap regulations giving parents of children up to the age 17 the right to request flexible working. There have also been rumblings about maternity rights being under threat. As ever the devil will be in the detail which is yet to come on this whole area.  

Company Cars

We were expecting some severe increases in taxes on company cars but the changes are relatively tame. Legislation is to be introduced in the Finance Bill 2011 to reduce the appropriate percentages by one per cent for all vehicles with carbon emissions between 95g and 220g. Zero emissions cars will remain at 0 per cent and ultra low emissions cars with emissions up to 75g will remain at five per cent.
These changes will all come into affect from April 2013. There was no surprise to see that the Fuel Benefit Charge will increase from £18,000 to £18,800 with effect from 6 April 2011. Employees and directors who are provided with a company car and who also receive free fuel from their employers are subject to the fuel benefit charge.

Approved Mileage Allowance Payments (AMAPs)

The AMAPs rates have eventually increased after remaining stagnant for more years than I care to remember. Well, one of them is increasing anyway, the 40p rate will increase to 45p. Where employees use their own cars for business mileage they can claim reimbursement from their employers through the AMAPs which are not regarded as a taxable benefit.         
There is currently a higher rate of 40p per mile for the first 10,000 miles of business use and 25p per mile thereafter. The 25p rate however will not be changing so good news for the first 10,000 miles but those with high mileage will unfortunately not feel any benefit above the 10,000 miles. The legislation in place for employees for the passenger rate of 5p will also be extended to include volunteers where they claim the AMAP rates.  

Income Tax and Personal Allowances
Fortunately for payroll there were no last minute changes to the Income tax and personal allowances for the 2011/12 tax year. An increase of £630 for the under 65s’ personal allowance was announced for the 2012/13 tax year which will apparently take approximately another half a million employees out of income tax. The government have said that their goal is still to reach a £10,000 personal allowance.  The basic rate will be reduced accordingly to £34,370 but the higher rate threshold will be staying the same.  
There will be a change to the underlying indexation basis for direct taxes to the Consumer Prices Index (CPI) from April 2012. For the duration of this Parliament, the annual increases in the employer NICs threshold, the age related allowance and other thresholds for older people will be over-indexed compared to the CPI and will increase by the equivalent of the Retail Prices Index (RPI). The CPI is generally lower than the RPI so we will need to wait and see what the impact of this change will actually be.

Further changes
Simplification of Regulatory Penalties
Further consultation will be taking place on the Simplification of regulatory penalties and a consultation document will be published in June 2011 to consider further options.
The government has previously made proposals to allow HMRC, with appropriate safeguards, to obtain the working papers of dishonest tax agents, to penalise them and publish their details on HMRC’s website. Consultation will be taking place on this measure and the government will continue to informally consult stakeholders and will issue a consultation document and revised draft legislation in July 2011.
The government will shortly publish its finalised Tax Consultation Framework alongside a summary of the comments received on the draft Framework published last December. The framework sets out the approach the government will take to consulting on most changes to tax policy and legislation and it also sets out when, generally, consultation will not be appropriate and commits the government to explaining why it has not consulted or has departed from the framework.
Consultation will begin in the autumn to explore how the administration of the personal tax system can become more transparent for individuals. HMRC will develop and introduce a new online tax calculator and downloadable applications by April 2012. This will enable taxpayers to calculate both the annual tax and National Insurance contributions they can expect to pay and their overall effective tax rate. You never know this could reduce the number of queries that come in to payroll and employers alike.

The Government has considered three options on IR35 set out in the OTS’s review of small business, published earlier this month on HM Treasury website. They have decided that it cannot put substantial tax revenue at risk and will therefore retain IR35 and make improvements to the way in which it is administered. These improvements will provide greater pre-transaction certainty, including a dedicated Helpline staffed by specialists; provide greater clarity by publishing guidance on those types of cases HMRC view as outside the scope of IR35; restrict reviews to high risk cases carried out only by specialists teams; and promote more effective engagement with interested parties through an IR35 Forum to monitor HMRC’s new approach.