BUSINESS IN FOCUS
Employment Tax Changes
There are a number of changes coming into force from April 2016 relating to employees and the taxation of employment income and benefits. The main ones are highlighted below.
National Living Wage The National Living Wage (NLW) applies from 1st April 2016. This guarantees that all workers who are 25 and over will be paid at least £7.20 per hour, being 50p per hour higher than the current national minimum wage (NMW) for those 25 and over, this equates to an extra £900 per annum for those who work 37.5 hours per week. It is the intention that the NLW will rise to £9.00 per hour by 2020.
The government is encouraging employers to ensure they are ready to pay the new wage from 1st April 2016. HMRC will have responsibility for enforcing the new NLW in addition to the NMW and will take action where an employer fails to pay the correct wage. As part of this, HMRC has published a four-step guide for businesses on the living wage website, asking employers to:
1. Check you know who is eligible in your organisation. 2. Take the appropriate payroll action. 3. Let your staff know about their new pay rate. 4. Check your staff under 25 are earning at least the right rate of NMW.
For those not affected by the NLW the following NMW rates apply:
• £6.70: for 21s and over • £5.30: for 18 to 20-year-olds • £3.87: for under 18s
• £3.30: for apprentices (the rate applies to all apprentices in year 1 of an apprenticeship, and 16-18 year old apprentices in any year of an apprenticeship).
The NMW rates are reviewed annually and are usually updated every October.
National Insurance Contributions (NICs) NICs Employment Allowance The NICs employment allowance was introduced from 6 April 2014. It is an annual allowance which is available to
many employers and can be offset against their employer’s NIC liability. From April 2016, the government will increase the NIC employment allowance from £2,000 to £3,000 a year. The increase will mean that businesses will be able to employ four workers full time on the new NLW without paying any NIC.
To ensure that the NIC employment allowance is focused on businesses and charities that support employment, from April 2016, companies where the director is the sole employee will no longer be able to claim the NICs employment allowance.
NICs for under 21s As a reminder, from 6th April 2015 employers with employees under 21 years old no longer have to pay employer’s NIC on earnings of those employees, up to the Upper Secondary Threshold (UST) which is currently £42,385 per annum.
Employee benefits From 6 April 2016 a number of changes are being introduced relating to the tax treatment of employee benefits in kind and expenses:
• The £8,500 threshold below which employees do not pay income tax on
certain benefits in kind will be removed. There will be new exemptions for carers and ministers of religion.
• There will be a statutory exemption for certain expenses reimbursed to an
employee. This will replace the current system where employers have to apply for a dispensation to avoid having to report non-taxable expenses (on forms P11D). This will mean that all employees will automatically get the tax relief they are due on qualifying expenses payments.
If an employer wants to pay a set rate to employees for certain expenses, the employer will be able to apply to
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HMRC for approval to pay or reimburse expenses of employees at a rate set out in the application. HMRC can agree (an approval notice) if they are happy that the payment is a reasonable estimate of the amount of expenses actually incurred.
• HMRC will be able to issue Regulations to allow employers to
include taxable benefits in pay and thus account for PAyE on the benefits. Employers will therefore not have to include these items on forms P11D if they have registered to use HMRC’s PBIK registration service. Forms P11D(b) will still have to be made and will include the total values of all payrolled and non-payrolled benefits.
Pension auto enrolment Most employers will now be aware of their obligations under the above, many are already operating auto enrolment pension schemes. A summary of the requirements are detailed below.
Pension auto enrolment introduces a statutory obligation on employers to automatically enrol eligible employees in a pension scheme and pay pension contributions for the employees from the employer's staging date.
The contributions are being phased in with total minimum contribution rates initially set at 2% of qualifying earnings of which the minimum employer contribution is 1%. The contribution rates were set to increase from October 2017 to 5% (2% employer minimum) and 8% (3% employer minimum) from October
2018. However, the government has announced that they will delay these two scheduled increases in automatic enrolment minimum contribution rates by six months each, to align these changes with the start of the tax year. As more employers reach their staging date, the limited number of providers who offer auto enrolment pensions may struggle to cope with the demand, this in turn could delay the process resulting in the potential for fines for the employers. In light of the above we are recommending employers start planning for Auto Enrolment up to a year ahead of the staging date.
Real Time Information (RTI) RTI has been with us for a number of years now. In summary employers are required to make submissions to HMRC each time an employee is paid. Penalties apply were the employer does not comply with the regulations. However there is a relaxation on these penalties that allowed employers with less than 10 employees to report their PAyE information for the tax month 'on or before' the last payday in the tax month, instead of 'on or before' each payday. This relaxation will expire on 5 April 2016 and HMRC should notify you accordingly if this applies to you. n
For independent, professional advice, contact Robbie Barr on 028 9032 5050 or email
robbie@muldoonaccountants.co.uk Muldoon & Co Chartered Accountants, 16 Mount Charles, Belfast BT7 1NZ.
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