Spring Budget 2017 and the world of payroll

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The recent Spring Budget confirmed a number of payroll-related changes that will take place this year.

Tax rates and thresholds

As expected, the personal allowance increases in April 2017 to £11,500, continuing its rise towards the target of £12,500 by April 2020. The threshold at which higher rate earners pay 40% income tax will also increase to £45,000 in April 2017, as previously announced.

We will have to wait until the new Autumn Budget for the 2018/19 allowances and thresholds. 

Company cars, vans and fuel

Whilst there were no new announcements about car, van and fuel benefits, there will be a change in Vehicle Excise Duty for cars registered on or after 1 April 2017. See our previous update on this.

Tax-Free Childcare

The new childcare scheme will shortly be rolled out for working families with children under the age of 12. This will provide parents with up to £2,000 a year for each child tax free to help with childcare costs. Parents of younger children will be able to apply first, though all eligible parents will be able to claim by the end of this year. See our earlier article on this.

Off-payroll working in the public sector – expenses

From 6 April 2017 the responsibility for determining whether IR35 applies will become that of a public sector body that engages a contractor via an intermediary such as a personal service company.

The government also confirmed in the spring budget that the public sector body can, if it wishes, take into account a contractor’s expenses when calculating tax due. This puts the contractor on the same footing as an employee, whose employer can choose whether or not to reimburse expenses incurred.

Download our factsheet on IR35

Employment Allowance

Following reports of its misuse, HM Revenue & Customs is closely monitoring use of the Employment Allowance, which employers set against their secondary Class 1 NICs.

Removing National Insurance from the effects of the Limitation Act

From April 2018, National Insurance Contributions (NICs) will be removed from the effects of the Limitation Act 1980 in order to align the time limits and recovery process for enforcing NIC debts with other taxes.

State Pension age

The government is carrying out a statutory review of the State Pension age and will publish its findings by 7 May 2017.

Pensions: reducing the money purchase annual allowance

The money purchase annual allowance (MPAA) will be reduced from £10,000 to £4,000 with effect from 6 April 2017. The MPAA is the reduced amount of annual allowance of tax-free pension savings that an individual is permitted if a defined contribution pension fund has been flexibly accessed. The standard annual allowance is £40,000.

The MPAA is designed to limit the extent to which individuals could recycle funds and gain double tax relief and unused amounts cannot be carried forward to later years.

Charge on transfers for Qualifying Recognised Overseas Pension Schemes

Transfers to Qualifying Recognised Overseas Pension Schemes (QROPS) requested on or after 9 March 2017 will be taxable unless, from the point of transfer, both the individual and the pension savings are in the same country, both are within the European Economic Area (EEA) or the QROPS is provided by the individual’s employer.

If this is not the case, there will be a 25% tax charge to be deducted before the transfer takes place.

The scope of the tax rules is widened so that, following a transfer to a QROPS on or after 6 April 2017, they apply to payments out of those transferred funds in the five tax years following the transfer.

The rules will continue to allow overseas transfers from pension schemes that have had UK tax relief that are made when people leave the UK and take their pension savings with them to their new country of residence.

As a result of these changes, an overseas scheme cannot be a QROPS unless the scheme manager has given HMRC an undertaking that they will operate the new overseas transfer charge and pay this to HMRC when due. For the purposes of these new undertakings only, HMRC will deem existing QROPS to continue to meet the ‘qualifying’ requirement to be a QROPS until 13 April 2017. If by 13 April 2017 HMRC has not received the new undertaking, the overseas scheme will automatically cease to be a QROPS.

From 14 April 2017 HMRC will suspend the ROPS notifications list and publish an updated list on 18 April 2017.

New QROPS forms can be found on GOV.UK. HMRC will reject old versions of the forms used for transfers made after 8 March 2017.

Promoters of Tax Avoidance Schemes (POTAS)

New rules aim to ensure that promoters of tax avoidance schemes cannot circumvent the POTAS regime by re-organising their business by either sharing control of a promoting business, or putting a person or persons between themselves and the promoting business.

Legislative amendments will have effect from 8 March 2017 for the purpose of determining whether a person should be treated as meeting a threshold condition.

Strengthening tax avoidance sanctions and deterrents

The government will introduce a new penalty for a person who has enabled another person or business to use a tax avoidance arrangement that is later defeated by HMRC. The government will also remove the defence of having relied on non-independent advice as taking ‘reasonable care’ when considering penalties for a person or business that uses such arrangements.

Image rights

Some employers pay image rights to their employees under separate contractual arrangements from their employment income. HMRC is to publish guidelines for employers who make such payments in order to “clarify” the current rules.

Help with your payroll

If you would like to discuss these changes and how they may impact on your payroll, please contact a member of our payroll team.

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