If your organisation has employees, you should have received all the information you need from HMRC, so this is just a reminder of some key points, or background that might of interest even for organisations that don't have employees.
For quick reference, the tax and NI rates for 2018-19, along with rates for statutory maternity, paternity, adoption pay, shared parental and statutory sick pay, student loan recovery, advisory fuel rates for company cars provided to employees, and mileage allowance payments for employees' vehicles, are on Gov.uk
The key changes that came into effect on 6 April 2018 were:
- The personal allowance – the amount that income can be earned free of tax – went up from £11,500 to £11,850 per year (£228 per week, £988 per month), equivalent to a tax cut of £70 per year for most taxpayers. As in the past, the personal allowance may vary for individual taxpayers.
- New rules apply to benefits in kind (BiKs) provided to employees. Such benefits provided during tax year 2017-18 need to be reported to HMRC on form P11D before 6 July 2018, unless the employer is registered to deal with tax on benefits and expenses through the payroll [see below].
- There are significant changes to taxation of termination payments [see below].
- In England, Wales and Northern Ireland, the basic tax rate remains 20% on income above personal allowance, with the 40% higher rate band starting at £46,351 (increased from £45,001) , and the 45% additional rate band continuing to start at £150,000. Tax rates are now different in Scotland [see below].
- The minimum contribution to auto-enrolment pensions has increased for both workers and employers there will be an update on this in due course.
In the meantime information on auto-enrolment is available:
Pensions Advisory Service
Tax-free childcare has now been fully rolled out for all eligible parents. In a related change, childcare vouchers – which were supposed to close to new entrants on 5 April – will remain open until 4 October [see below].
BENEFITS IN KIND
Salary sacrifice is a contractual arrangement under which an employee gives up a right to part of their salary, usually in return for a non-cash benefit in kind (BiK) such as a mobile phone, company car or healthcare. Many benefits provided to employees have been exempt from employee's class 1 national insurance contributions (NIC), and some have not been taxable at all, so by receiving these instead of salary the employee saves not only their NIC but also income tax, and the employer saves their employer's class 1A NIC (NIC on benefits in kind).
But from 6 April 2017, tax and some national insurance advantages have been removed from many benefits when provided as part of salary sacrifice schemes, as well as schemes where there is a cash allowance option for benefits, and flexible benefit schemes with a cash option. From that date any such arrangement is called an optional remuneration arrangement (OpRA), and benefits provided as part of it are subject to income tax and to employer's class 1A NIC in the same way as benefits in kind that are not part of an OpRA.
Specified benefits in kind which are already exempt from tax and NIC remain exempt even if provided under an OpRA. The following have not become subject to tax or employer's class 1A NIC: payments by employers into registered pension schemes; employer-provided pensions advice; childcare vouchers, workplace nurseries and directly contracted employer-provided childcare; cycles and cyclists' safety equipment (including the cycle to work scheme); and cars with CO2 emissions of 75g/km or less. OpRAs for school fees, accommodation, and cars with emissions above 75g CO2/km have not become subject to tax and NIC now, but will on 6 April 2021 (or, if sooner, when the salary sacrifice arrangement ends or is changed, modified, varied or renewed).
The bad news is that popular benefits included in salary sacrifice and similar schemes, such as medical insurance, gym membership, mobile phones, car parking, and any other OpRA benefit that is not explicitly excluded is now subject to tax and employer's class 1A NIC. Such benefits will, however, remain exempt from employee's class 1 NIC.
The value of the benefit for tax and NIC will be the cash foregone (the salary sacrificed) or the cost of the benefit to the employer, whichever is higher.
Unless the employer was registered for payrolling of benefits (paying tax on benefits and expenses through the payroll) during tax year 2017-18, all benefits provided during that year, including those provided under an OpRA, must be reported to HMRC on form P11D by 6 July 2018. Employers who payroll benefits must submit form P11D(b) by that date.
For tax year 2018-19, employers could have voluntarily payrolled the benefits provided under an OpRA by registering with HMRC before the start of the new tax year on 6 April 2018. If an employer has a valid reason for not having registered on time, HMRC may agree that the employer can start to payroll informally during the tax year.
Starting point for information about tax and national insurance on benefits and expenses, registering for voluntary payrolling and what needs to be reported on P11D or P11D(b):
How expenses and benefits should be reported, whether covered by an OpRA or not:
Legislation: schedule 2 of the Finance Act 2017.
When a contract of employment allows an employer to dismiss an employee by making a payment in lieu of notice (PILON) rather than giving the notice to which the employee would be entitled, the payment is subject to tax and employer's and employee's class 1 national insurance contributions in the usual way, even if the contract says that the payment is discretionary. But where there is no contractual entitlement for the employer to make a PILON, any such payment up to £30,000 has been treated as compensation for breach of contract rather than pay, and has not been subject to tax or NICs.
This has now changed. For terminations taking effect on or after 6 April 2018, with a PILON made on or after 6 April, some or all of the PILON is subject to tax and NICs even if the payment is not contractual.
For tax purposes, the PILON is divided into two parts:
- Post-employment notice pay (PENP), representing the basic pay the employee is not receiving because their employment was terminated without full or proper notice being given;
- The remaining balance of the termination payment or benefit which is non-PENP.
The PENP is subject to tax and NICs in the usual way, but the non-PENP element of the PILON is subject to tax (but not NICs) only if it is over £30,000. Where a PILON is given, there is a statutory formula for calculating how much of the total payment is and is not PENP.
The government intended to impose employer's class 1A NIC on termination payments over £30,000 from 6 April 2018, but due to a delay in legislation this was postponed and is now due to come into effect on 6 April 2019.
Foreign service relief on termination payments to UK residents employed abroad has also been removed, except for seafarers. UK residents whose employment ends on or after 6 April 2018, and who receive a payment or benefit made after 13 September 2017 in connection with that termination, will not be eligible for tax relief for any period of foreign service as part of that job, if they are UK resident for the tax year in which their employment is terminated.
"PILONs: Taxing times", short intro blog, Allen & Overy solicitors, 19 April 2018:
"Taxation of termination payments", what is and isn't taxable, Out-law.com, April 2018:
"Termination payments: What do employers need to know and do?", longer article with a worked example of how to calculate the PENP and non-PENP elements of a termination payment, Osborne Clarke solicitors, 10 April 2018:
HMRC's detailed guidance on termination payments in its employment income manual:
This is intended for tax experts. I haven't been able to find any straightforward guidance for non-experts on the HMRC website, though it is probably there somewhere – all I can find are policy papers and short news articles.
The government's tax-free childcare scheme, which started in April 2017 and completed its rollout in February 2018, provides eligible employed or self-employed parents with a government top-up of up to a £2,000 per year for each child aged under 12. If the child is disabled, the top-up can be up to £4,000 per year while the child is under 17.
To be eligible, the parent (if a single parent) or, in most cases, both parents in a couple must be in work (employed or self-employed); must expect to earn at least the equivalent of 16 hours at the national living wage for the next 13 weeks (currently £125.28 per week); and neither parent may earn more than £100,000 per year. Generally both parents in a couple have to be working, but they will remain eligible if they are absent on paid or unpaid maternity, paternity or adoption leave or on paid sick leave. Parents who are starting out as self-employed do not have to earn the minimum income level during a "start-up period". All parents in the scheme have to confirm every three months that they remain eligible.
The parent(s) open a childcare account for each child, and for every 80p the parent, employer or anyone else pays into the account, to a maximum of £2,000 per quarter (£4,000 if the child is disabled), the government pays in 20p, to a maximum of £500 per quarter (£1,000 if the child is disabled). This is equivalent to the basic rate tax the parent paid on the amount they deposited, which is why the scheme is called tax-free. The childcare accounts are opened via the childcare choices website [see Resources, below] and are held by National Savings and Investments (NS&I), the state-owned savings and investment organisation.
The money in the account can then be used to pay any childcare provider regulated by Ofsted in England, or the equivalent bodies in Wales, Scotland and Northern Ireland.
Parents can pay in as much or as little as they wish, whenever they wish, and can withdraw funds when their circumstances change or they no longer want to pay into the account. If funds are withdrawn, the government will withdraw its corresponding contribution.
Employers have no direct involvement with the tax-free childcare scheme, but may choose to make payments into their employees' childcare accounts. Any such payment is subject to tax and to employer's and employee's class 1 national insurance contributions. The tax, but not the employee's NIC, is "repaid" to the parent through the government's contribution to the childcare account.
Employer supported childcare
The employer-supported childcare (ESC) scheme of childcare vouchers was supposed to remain open to new entrants only until April 2018, but on 13 March 2018 the government announced the deadline would be postponed for six months, and the scheme will be open to new entrants who receive their first voucher on or before 4 October 2018. Employees who are already members of their employer's ESC scheme at that time will be able to remain members for as long as they remain with their employer and for as long as their employer continues to offer the scheme, provided they do not take a break from receiving vouchers for a year or more. Alternatively an employee in the scheme can choose to move to tax-free childcare, but cannot receive support through both schemes at once, and after moving from vouchers to tax-free childcare cannot return to the voucher scheme.
Although employers can continue to offer childcare vouchers to new entrants until October, they can choose to close their scheme earlier.
Weighing up the options
The decision on whether parents will be better off with employer-supported childcare (where it available) or a childcare account will depend on how much they earn, how much they spend on childcare, whether both parents work, and the age of the child or children and whether the child is disabled. Similarly, parents who are currently receiving tax credits or universal credit will need to decide whether to keep those benefits, or open a childcare account instead. The childcare choices website outlines the range of options, eligibility, and what they provide [see Resources].
Childcare choices website, sets out all the help available and includes a childcare calculator and link to apply for tax-free childcare: https://www.childcarechoices.gov.uk/.
"Help paying for childcare", with information about all the options, and a link to apply for tax-free childcare:
"Expenses and benefits: Childcare", information for employers,
source sandy adirondack 10.05.18