In association with

EMPLOYMENT TAXES VOICE Issue 01 – February 2016

Employment Taxes Voice | Issue 01 | February 2016 2

Chair’s view .............................................................................................................. 3

Are we there yet? ..................................................................................................... 5

Mark Groom provides an update on progress to date with travel and subsistence expenses

STBV reporting becomes special! .............................................................................. 8

Eleanor Meredith highlights the facts: it is true that STBV reporting has become special

Pension primer ....................................................................................................... 11

Teresa Preece brings us up-to-date on pensions

Employment Tax Changes ....................................................................................... 14

Susan Ball asks: Are you prepared for the employment tax changes in April 2016?

Your new Employment Tax Voice ........................................................................... 18

Consultations and submissions ............................................................................... 19

Events ..................................................................................................................... 23

Contact us ............................................................................................................... 24

Employment Taxes Voice

Issue 01 – February 2016

CONTENTS

Employment Taxes Voice | Issue 01 | February 2016 3

CHAIR’S VIEW

A period of unprecedented change…with more to come!

Welcome to this very first edition of Employment Taxes Voice. Well, 2015 was

certainly a very busy year for the Employment Taxes Sub-Committee with our

representations to HMRC and HM Treasury covering a whole range of issues.

Everything from termination payments to IR35 to tax relief on travel & subsistence

to the future of registered pensions. And 2016 promises to be equally busy with a

call for evidence by HMRC on living accommodation, work by the Office of Tax

Simplification on the alignment of income tax and National Insurance Contributions

(NICs), a cross-government study on employment status, the introduction of

voluntary payrolling of benefits-in-kind, the move from Form P11D dispensations to

an exemption for business expenses, the new HMRC reporting regime for taxable

Short Term Business Visitors (STBVs) and more. Simply listing what’s on the agenda

leaves me breathless!

But I think it is worth pausing to consider the themes cutting across all these

changes. Why is this such an unprecedented period of change? Well, I think it’s

because we are seeing a series of factors coming together around four main

headings: simplification, austerity, shaping employment taxes for the 21st century

and anti-avoidance.

The move from Form P11D dispensations to an exemption for business expenses is

clearly a move to simplify. And the related changes on abolishing the £8,500

threshold for Form P11D benefits, introducing a statutory exemption for trivial

benefits (to be legislated in Finance Act 2016) and voluntary payrolling of benefits

follow in much the same vein. Susan Ball elaborates on the position on page 14.

Simplification is also behind the introduction of an annual mechanism for

employers to account for PAYE on STBVs to the UK where treaty exemption does

not apply. Eleanor Meredith has more to say on these changes on page 8. In

contrast, the pension changes from 6 April 2016, tapering the annual allowance

down from £40,000 to £10,000 for those with incomes between £150,000 and

£210,000 and the lowering of the lifetime allowance from £1.25 million to

£1million, are clearly driven by austerity and the need to target tax relief in a rather

more focused way (remember the halcyon days of a £255,000 annual allowance!).

And with the Government now reviewing the whole area of pensions tax relief (and

the £50-60 billion per year which they say this costs) it looks like there may well be

more fundamental change to come… will we be talking about Pension ISAs in but a

few months’ time? Teresa Preece brings us up-to-date on the pension’s world on

page 11.

Brian Slater Chairman Property Taxes Sub-Committee

Colin Ben-Nathan Chairman, Employment Taxes Sub-Committee Colin is a tax partner at KPMG and can be contacted at Colin.ben-nathan@kpmg.co.uk or on 0207 311 3363

Employment Taxes Voice | Issue 01 | February 2016 4

Ensuring that the employment tax regime is fit for

purpose in the 21st century is vital. The recent HMRC

discussion document on travel and subsistence for

employees seeks to do this by revisiting some key

areas around multiple workplaces, the “intention”

aspect of the 24 month rule and the rules on how tax

relief is given for those working from home. At the

same time, and not so popular, is the suggestion that

tax relief for day subsistence may be removed in order

to balance the books. The CIOT’s representations on

the Government’s proposals can be found at

http://tinyurl.com/CIOT-UK-travel-sub and it will be

interesting to see how things develop. Mark Groom,

my Vice-Chair, warms to the theme on page 5.

And, finally, we come to the area of anti-avoidance.

Perhaps one of the most worrying points which came

to light in 2015 is that the IR35 regime originally

enacted in Finance Act 2000, is clearly broken. Or, as

HMRC puts it, “the government estimates that non-

compliance…. will cost the Exchequer £430m in tax

and NICs receipt this year and without reform, it

expects this loss to continue to grow”. Clearly £430m

is a very significant leakage of tax each year by any

standards! The CIOT’s response to the suggestions put

forward by HMRC to address this situation can be

found at www.tax.org.uk/ref979. Whilst we do not

think the idea of imposing a withholding obligation on

business is the right way to go, we do think it would

be appropriate to tighten up on reporting so that

HMRC has a much clearer view on what is going on

and can take action accordingly.

But I think the problem with IR35 illustrates a real

issue with the underlying tax treatment of

employments, self-employment and PSCs. And that is

one of “boundaries”. By “boundaries” I mean

differences in tax treatment across these three modes

of engagement; and in my view the more boundaries

we have the more likely it is that people will try and

game the system by positioning themselves on the tax

advantageous side of the line.

As I have said, we currently have an OTS project

looking at the alignment of income tax and NIC and a

cross-government study examining the whole area of

employment status, and it seems to me that the more

differences that can be removed between

employment, self-employment and PSCs, the less

opportunity there will be to finesse the rules and so

the less likelihood of £430 million holes appearing in

the government’s finances.

There is, of course, the fair point that entrepreneurs

should be rewarded for the extra business risk that

they take on but the question is whether the premium

for that risk should be borne by the tax system or by

the marketplace. Well, recognising that people work

in so many different ways these days and that it’s not

always so easy to determine who is being

entrepreneurial and who isn’t, personally I think there

is a good argument to have done with it and level the

tax playing field across the board. Indeed it will be

very interesting to see what emerges from the work

being done on employment status and on the

alignment of income tax and NICs on this front,

particularly around the thorny issue of employer’s

NIC. Might we see a gradual transition away from this

“tax on jobs” to other sources of revenue, or is that

just wishful thinking on my part?

Anyway one thing is for sure and that’s that the

Employment Taxes Sub-Committee will not be short

of things to do in 2016. If you would like to get more

involved please do let me know.

Colin Ben-Nathan

Chair, CIOT Employment Taxes Sub Committee

Employment Taxes Voice | Issue 01 | February 2016 5

ARE WE THERE YET?

Mark Groom provides an update on progress to date

with travel and subsistence expenses

On 9 December 2015, HMRC published a Policy Paper

on restricting tax relief for travel and subsistence

(T&S) for workers employed through an employment

intermediary. The stated policy objective was to

“prevent workers, engaged through an employment

intermediary, and their employers, from benefiting

from relief for home-to-work travel expenses”.

Business travel v ordinary commuting

There is considerable precedent supporting the

position that the cost of ordinary commuting (home

to work travel) is not tax deductible. One of the

earliest cases, Cook v Knott [2TC246] established

clearly that “expenses in travelling to work from a

place of personal convenience or pleasure or

domestic necessity were never intended to be treated

as necessarily incurred in the transaction of business”.

Numerous subsequent cases have re-confirmed this

personal choice “principle”, with a very high bar set

for exceptions, as in the case of Pook v Owen

[45TC571]. Dr Owen was a doctor with a general

practice at home, who also worked at a hospital 15

miles away. He was allowed a deduction for mileage

allowances paid on emergency call-outs from home,

but only on the basis that his responsibilities began as

soon as he received the call from the hospital.

HMT is reviewing the current framework re

permanent and temporary workplaces, from which

we hope the problem of multiple permanent

workplaces will soon be solved. Homeworking will be

part of that review, including what should ‘an

objective requirement for an employee to work from

home’ mean these days. However, to ensure cost

neutrality, the cost of modernisation might have to be

paid for by restricting or losing tax relief for day

subsistence expenses. This review is understood to be

a longer term project that may lead to changes.

Where intermediaries are involved

In the case of personal service companies (PSCs)

HMRC provides an example in its guidance of an IT

consultant operating through a PSC with three

different clients around the country. HMRC considers

that each of these places will be a temporary

workplace (subject to the normal conditions e.g. not

exceeding 40% or more of the employee’s working

time over a period exceeding 24 months). It wasn’t

that simple in the case of Miners v Atkinson [68TC629]

where Mr Miners was denied tax relief for travel

expenses to clients, because the courts determined

that “it was not necessary for his work to be carried

out where he lived. It could have been done

anywhere”.

In the case of agency workers, their tax treatment

derives from the case of Kirkwood v Evans [74TC481]

which provides us with two key insights. Here, Mr

Evans worked at home under a voluntary home

working arrangement. First, the courts unsurprisingly

found that working from home “was not a necessary

incident of his employment”. Second, it was noted

that “To avoid the costs of regular commuting being

reclaimed simply because the employment itself is of

limited duration [the legislation] excludes travel to a

workplace during the course of a limited or fixed term

of employment if the place is one at which the duties

of the employee are performed to a significant extent.

Commuting to and from work at a temporary job is

therefore ordinary commuting because the locus in

quo is a "permanent workplace" and not a temporary

one.”

Employment Taxes Voice | Issue 01 | February 2016 6

Since 1998, other site based workers such as

employees in the construction industry have been

entitled to relief when travelling to different sites.

However, they are providing their personal services to

their employer; they work to deliver their employer’s

services to its clients. In contrast, workers supplied by

an intermediary typically provide their personal

services to end clients. Furthermore they do so as a

matter of personal choice. These factors arguably

make travelling to client sites where an intermediary

is involved, much more like ordinary commuting.

The position from 6 April 2016

Increasing numbers of contingent workers in the UK,

concerns around non-compliance and a return to tax

first-principles, has resulted in new legislation

(currently being finalised) to restrict tax relief for

home to work travel and subsistence from 6 April

2016 where a worker:

personally provides services to another

person

under arrangements involving an employment

intermediary.

Other than in the case of PSCs, this will not apply if it

can be shown that the manner in which the worker

provides his/her services is not subject to supervision,

direction or control (SDC) by any person. In a last

minute change, this will only apply to PSCs where IR35

applies; so, for PSCs this will be where the

hypothetical employment status test (and other IR35

conditions) are met, rather than being based on SDC

(but this will also change to an SDC test if IR35 adopts

an SDC test in future).

In the above circumstances, draft clause 9 of the

Finance Bill 2016, proposes a new ITEPA section

©Shutterstock/Dotshock

Employment Taxes Voice | Issue 01 | February 2016 7

339A, under which section 339A(4) treats each

“engagement” for the purposes of sections 338 and

339 as a separate employment. As such, travel from

home to each separate employment will be regarded

as ordinary commuting for which no tax relief will be

available.

The term “engagement” is defined as the provision of

personal services by a worker to a client. If such an

engagement involves travel to one client site only, no

relief will be available; however, if the client requires

the worker to work at multiple different sites under

that contract/engagement, relief should be available

provided they qualify as temporary workplaces.

Employment intermediaries only include persons

carrying on a business (whether or not with a view to

profit and whether or not in conjunction with any

other business) of supplying labour. This is intended

to prevent circumvention by introducing an element

of, say, accountancy services to what is essentially a

business supplying labour, as witnessed when the

MSC legislation was introduced. However, already

there are suppliers of labour one day, claiming to have

become mainstream construction operators the next.

New Regulations provide that, where a relevant PAYE

debt in relation to travel expenses under these

provisions is not paid by the company in certain

circumstances, including in the case of PSCs, failing to

obtain evidence from a third person regarding the SDC

test, HMRC may transfer the debt to the directors

under a new Personal Liability Notice.

Salary sacrifice and expenses generally

This is a separate matter, but it is worth noting that

the new regime to exempt certain business expenses,

will not apply where those expenses vary in some way

with earnings. However, provided the expenses are

not paid under arrangements involving an

employment intermediary, individuals may still claim

tax (but not NIC) relief under Self Assessment.

Conclusions

The new proposals may be based on long established

principles, but those who have enjoyed the benefit of

the current system will not want to see it go,

obviously. Economics will determine the proportions

in which workers, intermediaries and end clients will

bear the cost of losing this relief. The transfer of debt

rule will give the new provisions real teeth, although

arguably not in the case of PSCs, where apparently

90% of PSCs don’t think IR35 applies to them anyway!

Profile

Mark Groom is Vice Chair of the Chartered Institute of

Taxation’s employment taxes technical committee,

and an employment tax partner in Deloitte’s

Compensation and Benefits team with over 25 years’

experience. He advises clients in all sectors on key

employment related issues, including specialising in

employment status, intermediaries, pay, benefits and

expenses consulting and compliance. Mark can be

contacted at email: mgroom@deloitte.co.uk or on 020

7007 2770.

Employment Taxes Voice | Issue 01 | February 2016 8

STBV REPORTING

BECOMES SPECIAL!

Eleanor Meredith highlights the facts: it is true that

STBV reporting has become special

Introduction

Tracking, and reporting appropriately, the comings

and goings into the UK of group employees, who are

based outside the UK, tends to be a major headache

for the UK entities of international groups. The UK tax

compliance burden in particular has become more

onerous since HMRC reviewed its provision for short

term business visitors’ reporting (HMRC Manual at

PAYE 82000 Appendix 4), following the introduction of

the Statutory Residence Test (SRT). One particularly

unhelpful development was a new focus on

individuals who were for any reason ineligible for an

exemption from UK tax under the employment

income article of a double tax treaty.

This comprised two main groups, those from non-

treaty countries, such as UAE and Brazil, and those

employed by branches of a UK entity (so ultimately

employed by UK employers). This is a significant

challenge for UK companies in certain sectors, such as

banking and insurance, which commonly use a branch

structure internationally.

HMRC’s release of a new-format special arrangement

of PAYE reporting that can, from 2015/16 onwards, be

applied to certain individuals in this group is therefore

to be welcomed. In this article I explore the scope and

limitations of this reporting, together with the

underlying guidance issued by HMRC, and what this is

likely to mean for affected employers in practice.

Overview of the arrangement

The special arrangement is an administrative

easement only, but it is a significant one, particularly

bearing in mind the challenges that RTI presents when

a host employer may not have instantaneous access

to details of all international visitors at the time that

payroll calculations have to be run for any given

month. Where a host employer has signed up to the

arrangement, it is not required to account for PAYE

for individuals covered by the arrangement, except as

a month 12 PAYE calculation. In cases where the

individual is entitled to personal allowances, and the

taxable remuneration is limited, this may avoid

payments of tax being made that are not ultimately

due. It is also anticipated that individuals within the

arrangement will be wholly outside self-assessment,

which will minimise reporting obligations and

associated compliance costs.

The special arrangement applies only to employees

for whom treaty exemption cannot be in point

because either they are employed by a branch of a UK

entity and so have a UK employer, or their home

country does not have a double tax treaty with the

UK. Directors of UK entities are specifically excluded

from the arrangement. In addition, it can only apply to

employees who have no more than 30 UK workdays in

the tax year concerned.

The 30 day limit

The 30 day limit is quite different from a conventional

treaty days limit, in that it covers only workdays, not

days of UK presence. In addition, as it aims to tax only

those workdays that are taxable under UK domestic

law, only those on which substantive duties are

performed will need to be included. This is likely to

cover most UK workdays, as individuals coming to the

UK to work will generally be performing activities that

extend beyond the limited case law definition of

incidental duties. However, there are employers who

Employment Taxes Voice | Issue 01 | February 2016 9

bring individuals into the UK for training, and provided

no other work related activity is performed on a

training day, that day may be omitted from the day

count as one on which only incidental duties were

performed.

The interpretation of travel to and from the UK in the

context of the 30 day limits also deserves a mention.

The commentary in HMRC’s PAYE Manual indicates

that it will be an employer’s responsibility to decide

when travel within the UK should and should not

make that day count for the purposes of the special

arrangement and cross-refers to the rule of thumb set

out in Appendix 2 of the Employment Income Manual.

This is a practice developed by HMRC some years ago

that operates as a means of estimating what is a UK

and what is an overseas workday in a travel context,

depending on length of journey and arrival time in or

departure time from the UK.

The primary function of the practice is to support

apportionment of earnings in relation to travel where

the employee is entitled to overseas workdays relief.

However, where it is particularly helpful in the context

of the PAYE special arrangement is that someone

arriving in the UK in the afternoon or evening will

normally be assumed to have a wholly non-UK

workday. Similarly someone leaving the UK in a

morning will also be assumed to have a wholly non-UK

workday. In both cases, this is subject to the individual

concerned not actually undertaking any duties in the

UK.

In practice, whether any duties are performed or not

will be difficult to police, both for HMRC and

employers, especially where delays in travel mean

that a journey does not start or end exactly as

expected. However, in cases where any given

individual is getting close to the 30 day limit host

employers may want to take steps to monitor time

spent working in the UK more actively, and to

encourage affected individuals to plan their travel

appropriately, bearing in mind how it will affect the

day count. Where this makes the difference between

©Shutterstock/Philip Bird LRPS CPAGB

Employment Taxes Voice | Issue 01 | February 2016 10

reporting under the special arrangement and being

obliged to report via RTI, the implications go beyond

an extra day’s worth of UK tax.

Whatever else they do, host employers will actively

need to monitor time spent in the UK by individuals

who they want to be subject to the arrangement, so

that they can report anyone exceeding the limit

appropriately under RTI without any unnecessary

delay.

Remuneration to be included

The agreement requires tax to be applied to the UK

workday portion of all remuneration including any

benefits in kind. Many UK provided benefits such as

travel and accommodation will be eligible for

detached duty relief, but ongoing home country

benefits typically will not be, and their value may be

difficult to ascertain, especially where different

valuation rules apply.

More helpfully, and provided that the individual is not

subject to tax equalisation the calculation only

requires a gross up on the benefit in kind, and not on

any cash remuneration. This appears to be a

recognition by HMRC that as it may be difficult

practically for the employee to obtain a tax credit in

the home location on the basis of withholdings,

especially if the amounts involved do not justify the

preparation of home country tax returns, tax leakage

is possible.

Filing deadline and payment of tax

The arrangement is subject to a strict filing deadline of

19 April following the end of the tax year concerned

and late filing penalties can apply in case of any

default. HMRC has been very clear that this is a strict

deadline and that there is unlikely to be any relaxation

of this. The related payment of tax is due by 22 April

(assuming an approved method of electronic

communication is used) and penalties and interest

charges may also apply in the case of late payment.

National Insurance

The arrangement does not extend to NIC, but given

the 52 week exempt period that normally applies for

individuals who do not ordinarily fulfil conditions to

be within the territorial scope of NIC this may have

little practical impact.

Conclusions

It is too early to tell how popular the special

arrangement will ultimately be, but it has already

attracted a lot of interest, particularly among UK

headquartered organisations that operate through

branches internationally. If it proves to be a practical

solution to what would otherwise be an RTI nightmare

for employers, it will be a welcome relaxation to the

strict legislative approach.

Profile

Eleanor Meredith is an Executive Director in People

Advisory Services at EY UK, within the Mobility tax

technical team in EY LLP. Eleanor has more than 25

years' experience in tax and has specialised in various

aspects of employee taxation for most of that time.

She can be contacted at emeredith@uk.ey.com

Employment Taxes Voice | Issue 01 | February 2016 11

PENSION PRIMER

Teresa Preece brings us up-to-date on pensions

It is rare today for there to be no pressing legislative

issues relating to pension schemes. In this article we

will look at automatic enrolment, the imminent

reduction in the tax-effective pension savings

allowances and the government’s consultation on

pension tax relief.

Automatic enrolment

The Pensions Acts of 2008 and 2011, together with

associated regulations, set out the legislative

framework for automatic enrolment. The provisions

are being phased in, applying to the largest employers

from 1 October 2012 and extending to all employers

by 2018. That means we are currently in an

interesting period when the smallest employers are

just starting auto-enrolment.

The Pensions Regulator (TPR) estimates that 1.8

million small and micro employers will start to

automatically enrol their employees into pension

schemes over the three years from 2015 to 2018. As

part of a general awareness campaign, TPR has been

involved in the development of “Workie”, the physical

manifestation of the workplace pension. There is also

more traditional guidance available on TPR’s website.

Auto-enrolment duties apply to employers with effect

from their staging date, which can be found from

TPR’s website if employers have not been formally

notified of it. TPR estimates that employers should

choose a suitable pension scheme approximately six

months before their staging date, to allow sufficient

time to put the proper processes in place.

Employers are required to automatically enrol any

‘eligible jobholders’ not currently in a ‘qualifying

scheme’ into an ‘automatic enrolment’ scheme. As is

often the case with pension legislation, these terms

are not simple to understand. It is not surprising,

therefore, that TPR estimate that 68% of small and

64% of micro employers plan to seek help with

automatic enrolment from a business adviser, with

accountants and IFAs likely to be the most commonly

used. However, for the remainder there are step-by-

step guides on TPR’s website, including direct links to

schemes (such as NEST, which was set up by

government, The People’s Pension and NOW:

Pensions).

There is also an explicit reference to the difference

between schemes using the net pay arrangement and

the alternative (relief at source), which includes the

observation that “you should check that your lower

paid staff are not worse off under net pay

arrangements”. This is because contributions paid

under relief at source are automatically credited with

basic rate tax in the scheme, even if the member is

not a taxpayer. This issue could become more or less

important in the future, depending on the outcome of

the government’s consultation on tax relief (see

below).

©ShutterstockAfrica Studio

Employment Taxes Voice | Issue 01 | February 2016 12

Reduction in the tax-effective allowances

The Finance Act 2004 was supposed to usher in an era

of “simplified” pension tax. Unfortunately, successive

governments have taken the view that the initial

upper limits (or allowances) on annual savings and

lifetime accrual of benefits were too generous and

those allowances have been reduced.

The latest changes take effect on 6 April 2016, when

the lifetime allowance (LTA) will reduce from £1.25

million to £1 million. In pure monetary terms this

sounds generous. However, for defined benefit

schemes (where a prescribed valuation factor of 20

for each £1 of pension applies), the limit will be

exceeded for those with an annual pension over

£50,000.

As in previous years, transitional protection from the

additional tax charge that applies when the LTA is

exceeded will be available for those who either have

savings already in excess of the LTA or might expect to

do so in the future (up to a maximum of £1.25

million). These protections will be similar to those

available in 2014 and will be known as Individual

Protection 2016 (IP) and Fixed Protection 2016 (FP).

For IP, the individual must have pension savings of at

least £1 million on 5 April 2016. The protected

amount will be the value of the savings at that date,

up to a maximum of £1.25 million. The protected

amount then becomes the individual’s LTA, which

means that the maximum pension commencement

lump sum (or PCLS, often referred to as the tax-free

cash sum) will be 25% of the personal LTA. People

with IP are permitted to make further pension savings

after 5 April 2016.

For FP, the individual must have no benefit accrual

nor make contributions to a money purchase scheme

after 5 April 2016 or the protection will be lost. Their

LTA will be £1.25 million and their maximum PCLS will

be £312,500.

Individuals will need to apply for these protections

online, although special interim measures will be in

place between 5 April 2016 and the time the Finance

Act 2016 receives Royal Assent.

There are more fundamental changes to the annual

savings limit, or annual allowance (AA). For the

highest earners, the AA will be reduced to a maximum

of £10,000. In broad terms, those with total income

(including the value of pension savings) exceeding

£210,000 will have an AA of £10,000. Those with total

income exceeding £150,000 will have an AA of

£40,000 reduced by £1 for every £2 of income above

£150,000. No reduction applies for those whose total

income (excluding pension savings) does not exceed

©Shutterstock/Constantine Pankin

Employment Taxes Voice | Issue 01 | February 2016 13

£110,000. The main problem with this test is that, for

many people, the relevant amount of income will not

be known until after the end of the tax year to which

the AA applies.

The government’s consultation on pension tax relief

At the time of the Chancellor’s summer budget last

year, he announced a consultation on pension tax

relief. The consultation asked wide-ranging questions,

put forward no specific proposals and was described

as genuinely open minded. However, the Chancellor’s

statement in his budget speech that “pensions could

be taxed like ISAs” (that is, moved to a Taxed-Exempt-

Exempt, or TEE, system) has led some to believe that

such treatment is the government’s preferred option.

The other widely-mooted possibilities are:

to retain the current system (broadly EET),

possibly with some changes to address the

difference between money purchase and

defined benefit schemes;

different systems for money purchase and

defined benefit schemes (possibly with the

former having annual contribution limits and

the latter having a lifetime limit) and

a flat rate of tax relief for all individuals.

None of the proposals is without challenges for

government, employers and employees.

The consultation period closed on 30 September 2015

and many people thought an announcement would be

made in the Chancellor’s autumn statement. It was

not, but he did say that the Treasury were considering

the responses to the consultation and the government

will publish its response in the 2016 budget.

Therefore, 16 March could be a watershed day for

pension savings.

Profile

Teresa Preece is a member of the UK Innovation

Policy and Research Team and has been with Mercer

since 1989. She has worked extensively on

researching the operation of UK pensions legislation,

both by reference to tax and social security issues.

Teresa is a Fellow of the Chartered Insurance Institute

and an Associate of the Pensions Management

Institute and can be contacted at

Teresa.Preece@mercer.com

Employment Taxes Voice | Issue 01 | February 2016 14

EMPLOYMENT TAX

CHANGES

Susan Ball asks: Are you prepared for the

employment tax changes in April 2016?

The employment tax rules are changing significantly

from 6 April 2016. It is important that practitioners

and employers are aware of these changes and have

revised their processes and procedures accordingly.

Below are some of the key changes:

The replacement of dispensations with an

exemption for paid or reimbursed expenses.

The abolition of the £8,500 threshold for

taxing certain Benefits-in-Kind (BIK).

The voluntary payrolling of BIK.

Trivial benefit limit.

The abolition of dispensations post 6 April 2016

From 6 April 2016 existing dispensations will no longer

be in effect. Almost all expenses or benefits that

might previously have been covered by a dispensation

will be covered by legislation (sections 289A – D,

ITEPA 2003 covering payment of tax-allowable

expenses) and therefore exempt from 6 April 2016.

However, if employers pay any bespoke scale rate or

round sum (other than under HMRC agreed working

rule agreements or the new HMRC benchmark scale

rates) they MUST take action before 6 April 2016.

This includes using an industry approved rate such as

the Road Haulage Association rate for lorry drivers.

Any employer with an existing bespoke rate agreed in

their dispensation will need to reapply for approval of

the rate with HMRC before 6 April 2016. If they don’t

they will no longer be valid and the amounts will

therefore be subject to tax and NIC.

Expenses and benefits will not be tax/NIC exempted if

they are provided under a relevant salary sacrifice

arrangement.

Employers who pay any non-allowable expenses or

provide non-exempt benefits will still need to put

those through the payroll and deduct tax and NICs or

put them on form P11D as they would now.

Expenses covered by legislation post 6 April 2016

In December 2015 HMRC published guidance on the

expenses exemption (see HMRC’s manuals beginning

at EIM30210). This stated that employers may

reimburse expenses that fall within the exemption in

one of three ways:

on an actual, receipted basis

at the approved benchmark scale rates as set

out in HMRC guidance (EIM30240)

at rates agreed with HMRC under a bespoke

agreement (EIM30250).

For all three methods, employers will have to

maintain records of the expenses and ensure that

employees are not reimbursed beyond the costs

actually incurred. However, the guidance makes clear

that where employers reimburse employees at either

the approved benchmark scale rates, or at rates

agreed under a bespoke agreement, a checking

system that complies with HMRC guidance must be

put into place. This is a new requirement for

employers.

HMRC benchmark rates

The HMRC benchmark scale rates have also been

slightly amended from 6 April 2016. These can be

used by employers for meals while employees are

Employment Taxes Voice | Issue 01 | February 2016 15

travelling on business without prior approval from

HMRC (see below.) If employers reimburse more than

the benchmark scale rates they should subject the

excess reimbursement to tax and NIC or seek to agree

a bespoke rate with HMRC.

“One meal allowance per day paid in respect

of one instance of qualifying travel, the

amount of which does not exceed:

(a) £5.00 where the duration of the qualifying

travel in that day is five hours or more;

(b) £10.00 where the duration of the

qualifying travel in that day is 10 hours or

more; or

(c) £25.00 where the duration of the qualifying

travel in that day is 15 hours or more and is

ongoing at 8pm.”

An additional allowance of £10.00 can also be paid

where a meal allowance is paid under (a) or (b) and

the qualifying travel is ongoing at 8pm.

Employers who are considering using these rates

from 6 April 2016 do not need to apply for an

approval notice (EIM30240), however they do need to

make sure that they meet the new ‘checking system’

requirements.

Bespoke agreements

Employers who wish to reimburse employees for

expenses at a rate higher than the approved

benchmark scale rates or under different

circumstances (even if they have previously agreed

the rate with HMRC) must apply to HMRC for approval

before 6 April 2016, or the rates will cease to be

allowed to be paid tax and NIC free from 6 April 2016.

©Shutterstock/Baranq

Employment Taxes Voice | Issue 01 | February 2016 16

Those with previously agreed rates, under five years

old, will be approved for five years from the initial

date of grant. Any over five years old, or where the

application is for a new rate, will require a sampling

exercise as detailed in EIM30250 (circa 10% of the

workforce, over a period of one month). Any new rate

will be agreed for a maximum of five years.

HMRC is currently developing an online form for

employers to use when applying for approval of

bespoke rates, which we understand should be

available shortly.

Checking systems

Employers and advisers should note there is a new

requirement in the legislation for a ‘checking system’.

This relates to both payments covered by legislation

and HMRC agreed bespoke rates. EIM30270 states

that employers must have a system in place for

checking that all reimbursements under the terms of

the exemption are properly within its scope. The

extent of the checking required will depend on the

size and scale of the business. Employers will need to

demonstrate that someone other than the employee

is responsible for ensuring that the reimbursements in

fact relate to qualifying expenses, do not include

disallowable items, and are not excessive.

The checks will need to incorporate a review of

records and receipts, and be undertaken regularly

during the year. HMRC has provided models of

checking systems at EIM30275 to assist employers in

implementing compliant systems. HMRC may ask to

review the checking system at any time.

The HMRC guidance can be found here:

https://www.gov.uk/hmrc-internal-

manuals/employment-income-manual/eim30200

Abolition of £8,500 earnings threshold for benefit

reporting

The £8,500 threshold for reporting purposes will be

removed from 6 April 2016. After this date, all

employees will need to be considered when

determining the end of year P11D position.

This measure was announced at Budget 2014, as part

of a package aimed to simplify administration of

employee BIK and expenses.

Payrolling of Benefits-in-Kind (BIK)

From 6 April 2016, HMRC will give employers the

option to process benefits in kind through the payroll.

Where the relevant tax and national insurance is then

collected through the payroll, there will be no need to

complete P11Ds for these benefits.

The original draft regulations were discussed over the

summer, and revised to make payrolling easier for

employers.

An HMRC online registration facility that allows

employers to include employees' BiK in the payroll

from 6 April 2016, rather than completing P11D

forms, has been up and running for some time now.

HMRC guidance at PAYE58701 indicates that the

benefits that cannot be included are:

vouchers and credit cards

living accommodation

interest-free and low interest (beneficial)

loans

Employers must register before 5 April 2016 if they

wish to payroll benefits during 2016/17: once agreed,

the benefits will not need to be reported on the form

P11D for 2016/17.

Employment Taxes Voice | Issue 01 | February 2016 17

Employers who currently have an 'informal'

agreement with HMRC to payroll certain benefits

must register in order to continue to do so from 6

April 2016.

The regulations which amend the Income Tax (Pay As

You Earn) Regulations 2003 can be found here.

The scale rate regulations are a standalone

instrument, which can be found here.

Trivial benefits

Dropped in the run-up to the general election, the

draft Finance Bill 2016 contains the statutory basis to

exempt low-value trivial benefits under £50 from

income tax and NICs.

These new rules will replace the current regime under

which employers are required to agree with HMRC

whether certain BIK can be treated as trivial on a

concessionary basis.

The HMRC guidance at EIM21860 sets out how to

determine whether a benefit provided to an

employee should be regarded as a trivial benefit.

The draft includes comment that qualifying trivial BIK

provided to directors and other office holders of close

companies is also subject to an annual cap of £300.

Where the director’s or other office holder’s family or

household member is also an employee of the

company, they will be subject to a £300 cap in their

own right. This change addresses a potential loophole.

Conclusion

Employment taxes have never been so interesting.

Over the last few years many changes, including the

agency rules, intermediary reporting and the Scottish

rate of income tax, have affected the fundamentals of

how employers manage their financial structures. But

these changes don’t show signs of stopping and across

this year alone we expect to see developments

announced covering termination payments,

employment status, accommodation benefits and

travel and subsistence to name just a few!

Some of the changes will be costly to employers and

employees. As a result, employers and practitioners

would do well to implement clear communication

strategies to minimize any potential disruption from

exiting or amending existing arrangements.

Profile

Susan is a member of the Chartered Institute of Tax’s

employment taxes technical committee, and

employment taxes forum. She is an employment tax

partner with more than 25 years’ experience working

extensively in the employment tax/NIC and reward

field. Susan is head of a multi-disciplinary team with

audit, tax and advisory firm, Crowe Clark Whitehill LLP

advising on the full range of employment issues for

businesses and high net worth clients – management

of costs (tax and NIC), planning, risk and reward

together with engagement and communication.

Susan can be contacted at susan.ball@crowecw.co.uk

or at +44 (0)20 7842 7238

Employment Taxes Voice | Issue 01 | February 2016 18

Members will be able to access Employment Taxes

Voice, together with its related articles at

taxadvisermagazine.com. Initially the site will not

require a password but in due course you will need

login details to access it.

Publishing on the web will allow us to provide more

information to members as well as reaching a wider

audience but we would really like to hear your

feedback. What do you find useful? What do you want

more (or less) of? – please email us at

technical@ciot.org.uk

The taxadvisermagazine website has undergone a

revamp recently and now has an easy to search

function for Personal Tax content under the ‘Feature’

and ‘Technical’ tabs. You can also access Tax Adviser

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YOUR NEW EMPLOYMENT TAX VOICE

Employment Taxes Voice is also published

on the Tax Adviser website

Employment Taxes Voice | Issue 01 | February 2016 19

CONSULTATIONS AND SUBMISSIONS

Draft Finance Bill 2016 Clauses 37-39 – Treatment of income from Sporting Testimonials (5 February 2016)

We commented on the draft legislation to tax the income from sporting testimonials granted to employed sportspeople. (http://www.tax.org.uk/policy-technical/submissions/draft-finance-bill-2016-clause-37-39-income-tax-treatment-income)

Draft Finance Bill 2016 Clause 12 – Reduction of pensions lifetime allowance (5 February 2016)

We commented on the reduction to the penion lifetime allowance and the introduction of two new transitional protections. (http://www.tax.org.uk/policy-technical/submissions/draft-finance-bill-2016-clause-12-reduction-pensions-lifetime-allowance)

Draft Finance Bill 2016 Clause 11 – Employee share schemes: simplification of the rules (5 February 2016)

We commented on the amendment that aims to clarify the tax treatment of Restricted Stock Units awarded to Internationally Mobile Employees unapproved employee share schemes. (http://www.tax.org.uk/policy-technical/submissions/draft-finance-bill-2016-clause-11-employee-share-schemes-simplification)

Draft Finance Bill 2016 Clause 9 – Employment intermediaries and relief for travel and subsistence (5 February 2016)

We commented on the draft legislation to prevent agency workers, umbrella company workers, and workers engaged by their own personal service company (where IR35 applies), from claiming a deduction for home to work travel and subsistence costs. (http://www.tax.org.uk/policy-technical/submissions/draft-finance-bill-2016-clause-9-income-tax-employment-intermediaries)

Draft Finance Bill 2016 Clause 8 – Exemption for trivial benefits in kind (5 February 2016)

We commented on the draft legislation to introduce a statutory exemption to exempt trivial benefits in kind (BIK) provided by employers to employees from income tax and NICs. (http://www.tax.org.uk/policy-technical/submissions/draft-finance-bill-2016-clause-8-income-tax-exemption-trivial-benefits)

Employment Taxes Voice | Issue 01 | February 2016 20

Withdrawal of ESCs: BIM66301 – Remuneration of sub-postmasters (8 January 2016)

We commented on the proposed withdrawal of the practice under which the remuneration of sub-postmasters can in practice be treated as a trade receipt where a retail trade is carried on from the same premises as the sub-post office. (http://www.tax.org.uk/policy-technical/submissions/withdrawal-statutory-concessions-ciot-comments)

Exclusion of certain companies from the National Insurance Contributions ‘Employment Allowance’ (24 December 2015)

We commented on draft regulations to exclude limited companies where the director is the sole employee from claiming the NIC Employment Allowance from April 2016. (http://www.tax.org.uk/policy-technical/submissions/exclusion-certain-companies-national-insurance-contributions-)

Travel and Subsistence (18 December 2015)

We commented on HM Treasury’s discussion paper on tax relief for employee travel and subsistence expenses. (http://www.tax.org.uk/policy-technical/submissions/travel-and-subsistence-ciot-comments)

Tax Treatment of Termination Payments (27 October 2015)

We commented on HMRC’s proposals to simplify the Tax and National Insurance Treatment of Termination Payments. (http://www.tax.org.uk/policy-technical/submissions/tax-treatment-termination-payments-ciot-comments)

Employment Intermediaries Travel and Subsistence

(9 October 2015)

We commented on HMRC’s proposals to restrict travel and subsistence tax relief for workers engaged through employment intermediaries. (http://www.tax.org.uk/policy-technical/submissions/employment-intermediaries-travel-and-subsistence-ciot-comments)

Employment Taxes Voice | Issue 01 | February 2016 21

Intermediaries Legislation (IR35): discussion document

(9 October 2015)

We responded to HMRC’s discussion document on the Intermediaries Legislation (IR35) (http://www.tax.org.uk/policy-technical/submissions/intermediaries-legislation-ir35-discussion-document-ciot-comments)

Strengthening the incentive to save: pensions tax relief

(6 October 2015)

We responded to HM Treasury’s consultation on the future of pensions tax relief. (http://www.tax.org.uk/policy-technical/submissions/strengthening-incentive-save-pensions-tax-relief-ciot-comments)

Apprenticeships Levy – Employer Owned

apprenticeships training

(6 October 2015)

We commented on the Department for Business, Innovation and Skills proposal to introduce an Apprenticeships Levy. (http://www.tax.org.uk/policy-technical/submissions/apprenticeships-levy-employer-owned-apprenticeships-training-ciot)

Zero-rate of Class 1 employer National Insurance contributions (NICs) for apprentices under 25 (16 September 2015)

We commented on the draft secondary legislation for the zero-rate of Class 1 employer National Insurance contributions for apprentices under 25. (http://www.tax.org.uk/policy-technical/submissions/zero-rate-class-1-employer-national-insurance-contributions-nics)

Review of employee benefits and expenses: draft

legislation

(16 September 2015)

We commented on four sets of draft secondary legislation arising from the review of employee benefits and expenses. The legislation:

removed the requirement for employers to make end of year returns on form P9D;

authorised employers to payroll benefits-in-kind and removed the requirement to make annual returns (P11D) where benefits-in-kind are payrolled;

set out the approved meal allowance rates employers can use to reimburse employees undertaking qualifying travel; and

removed the requirement for employers to report expenses paid to employees on form P11D.

(http://www.tax.org.uk/policy-technical/submissions/review-employee-benefits-and-expenses-draft-legislation-ciot-comments)

Employment Taxes Voice | Issue 01 | February 2016 22

Tax treatment of Income from Sporting Testimonials

(16 September 2015)

We responded to HMRC’s consultation on the tax treatment of Income from Sporting Testimonials. (http://www.tax.org.uk/policy-technical/submissions/tax-treatment-income-sporting-testimonials-ciot-comments)

Scottish Rate of Income (SRIT): Call for Evidence

(20 August 2015)

We responded to the Finance Committee of the Scottish Parliament’s call for evidence on the Scottish Government's proposals in relation to the Scottish Rate of Income Tax (SRIT). (http://www.tax.org.uk/policy-technical/submissions/call-evidence-%E2%80%93-scottish-rate-income-srit-%E2%80%93-ciot-comments)

Technical Guidance on Scottish Taxpayer Status

(30 July 2015)

We commented on HMRC’s draft Technical Guidance on Scottish Taxpayer Status. (http://www.tax.org.uk/policy-technical/submissions/technical-guidance-scottish-taxpayer-status-ciot-comments)

Employment Taxes Voice | Issue 01 | February 2016 23

Future branch events

Bristol 7 March 2016

Strategic remuneration – making the most of the new

pension freedoms for employers and employees

South London & Surrey 7 March

Employent remuneration issues

South Wales 8 March 2016

PAYE/NIC: update on HMRC programme of employer

compliance changes

Harrow & North London 17 March 2016

IR35 – Regaining the plot

Sheffield 6 April 2016

Employment Tax Update

East Midlands 9 April 2016

New Pension rules and Auto Enrolment

Suffol k 12 April 2016

Employment Tax issues

Sussex 21 April 2016

Share Schemes and Incentives

South West England 15 June 2016

CIS and IR35

EVENTS

Employment Taxes Voice | Issue 01 | February 2016 24

CONTACT US

To contact the Employment Taxes technical officer, Matthew Brown, please email: mbrown@ciot.org.uk

Editorial Team

Editor-in-chief Chris Mattos CTA ATT cmattos@ciot.org.uk

Editor Lakshmi Narain CTA lnarain@ciot.org.uk

Designer Sophia Bell sbell@tax.org.uk

© 2016 Chartered Institute of Taxation

Suggestions? If you have any suggestions for further

articles, please let us know:

technical@ciot.org.uk

Employment Taxes Voice | Issue 01 | February 2016 25

This publication is intended to be a general guide and cannot be a substitute for professional advice. Neither the

authors nor the publisher accept any responsibility for loss occasioned to any person acting or refraining from acting

as a result of material contained in this publication.