Employment taxes

Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. Most cars are taxed by reference to bands of CO₂ emissions multiplied by the original list price of the vehicle. Currently there is a 3% diesel supplement. The maximum charge is capped at 37% of the list price of the car.

In the current tax year there is a 9% rate for cars with CO₂ emissions up to 50gm/km. From 6 April 2018 this will be increased to 13%, and from 6 April 2019 to 16%.

For other bands of CO₂ emissions there will generally be a 2% increase in the percentage applied by each band from 6 April 2018. For 2019/20 the rates will increase by a further 3%.

The government previously announced that they will legislate to increase the diesel supplement from 3% to 4%. This will generally apply to all diesel cars (unless the car is registered on or after 1 September 2017 and meets the Euro 6d emissions standard) but the maximum is still 37%. There is no change to the current position that the diesel supplement does not apply to hybrid cars. The change will have effect from 6 April 2018.

Employer-Supported Childcare schemes close to new joiners

Many employers help employees with childcare costs, often by providing childcare vouchers by way of salary sacrifice. Following the roll out of Tax-Free Childcare, the new government scheme to help working parents, existing Employer-Supported Childcare (ESC) schemes were expected to close to new joiners from April 2018. However following the Chancellor’s Statement Education Secretary Damian Hinds made a concession to delay scrapping the scheme by six-months.

Employees already using ESC can choose whether to remain in existing schemes or switch to Tax-Free Childcare, but parents cannot be in both Tax-Free Childcare and ESC at the same time.

Comment

The Childcare Choices website provides useful guidance on the options available to parents.

Different forms of remuneration

In the Spring Budget 2017 the government stated that it wished to consider how the tax system ‘could be made fairer and more coherent’. A call for evidence was subsequently published on employee expenses. The government’s aim is to better understand the use of the income tax relief for employees’ business expenses. It sought views on how employers currently deal with employee expenses, current tax rules on employee expenses and the future of employee expenses.

Following the call for evidence:

• the government announced that the existing concessionary travel and subsistence overseas scale rates will be placed on a statutory basis from 6 April 2019. Employers will only be asked to ensure that employees are undertaking qualifying travel
• the government also announced that employers will no longer be required to check receipts when making payments to employees for subsistence using benchmark scale rates. This will apply to standard meal allowances paid in respect of qualifying travel and overseas scale rates. Employers will only be asked to ensure that employees are undertaking qualifying travel. This will have effect from April 2019 and will not apply to amounts agreed under bespoke scale rates or industry wide rates
• HMRC will work with external stakeholders to explore improvements to the guidance on employee expenses, particularly on travel and subsistence and the claims process for tax relief.

Self-funded work-related training

The government had previously announced that it would consult on extending the scope of tax relief currently available to employees and the self-employed for work-related training costs. A call for evidence consultation has now been issued. Under current rules:

• an employee only receives tax relief on self-funded training if it is both ‘wholly exclusively and necessarily’ and an intrinsic contractual duty of their existing employment and
• a self-employed person can only deduct training costs incurred wholly and exclusively for their business where it maintains or updates existing skills.

The purpose of the consultation is to gain an understanding as to how an extension to the existing tax relief can be designed to upskill or retrain those who want or need to change their career. This will include taking into account lessons from previous initiatives and ensuring that tax relief on work-related training is not obtained on recreational activities.

Changes to termination payments

The government previously announced changes to align the rules for tax and employer NICs by making an employer liable to pay Class 1A NICs on any part of a termination payment that exceeds the £30,000 threshold that currently applies for income tax. In November 2017 the government decided to implement a one year delay for the Class 1A NICs measure so the change will take effect from April 2019.

‘Non-contractual’ payments in lieu of notice (PILONs) will be treated as earnings rather than as termination payments and will therefore be subject to income tax and Class 1 NICs. This will be done by requiring the employer to identify the amount of basic pay that the employee would have received if they had worked their full notice period. This takes effect from April 2018.

The government will legislate to ensure that employees who are UK resident in the tax year in which their employment is terminated will not be eligible for foreign service relief on their termination payments. Reductions in the case of foreign service are retained for seafarers. Broadly the changes will have effect from 6 April 2018 and apply to all those who have their employment contract terminated on or after 6 April 2018.