Off-payroll working in the public sector
As previously announced, from 6 April 2017, new tax rules potentially affect individuals who provide their personal services via their own companies (PSCs) to an organisation which has been classified as a 'public authority'.
The effect of these rules, if they apply, will mean:
- the public authority (or an agency paying the PSC) will calculate a 'deemed payment' based on the fees the PSC has charged for the services of the individual
- the entity that pays the PSC for the services must first deduct PAYE and employee National Insurance contributions (NICs) as if the deemed payment is a salary payment to an employee
- the paying entity will have to pay to HMRC not only the PAYE and NICs deducted from the deemed payment but also employer NICs on the deemed payment
- the net amount received by the PSC can be passed onto the individual without paying any further PAYE and NICs.
Public sector organisations include government departments and their executive agencies, many companies owned or controlled by the public sector, universities, local authorities, parish councils and the National Health Service.
The new rules operate in respect of payments made on or after 6 April 2017. This means that they are relevant to contracts entered into before 6 April 2017 but where the payment for the work is made after 6 April 2017.
Where individuals are working through their PSC for private sector clients, the new rules will not apply to income from such work.
It is for the public authority to decide if the deemed payment rules apply. To help all parties determine whether these rules apply, HMRC have provided an online employment status tool. There is no formal right of appeal to HMRC or the Tax Tribunals by the individual or the PSC. If a new contract is entered into after 6 April 2017, the expectation would be that the PSC would agree the treatment within the initial contract. If it is an existing contract a discussion will need to take place with the public authority as to the reasons for its decision.
Apprenticeship levy and apprenticeship funding
Larger employers (or connected employers treated as large) will be liable to pay the apprenticeship levy from April 2017. The levy is set at a rate of 0.5% of an employer's pay bill, which is broadly total employee earnings excluding benefits in kind, and will be paid along with other PAYE deductions. Each employer receives an annual allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any pay bill in excess of £3 million in a year.
Employers only need to report on the levy where they have a pay bill of £3 million in the current tax year or consider that the pay bill will be over £3 million during the 2017/18 tax year.
The levy will be used to provide funding for apprenticeships and there will be changes to the funding for apprenticeship training for all employers as a consequence. Each country in the UK has its own apprenticeship authority and each is making changes to its scheme.
Different forms of remuneration
The government is consulting on the following:
Taxation of benefits in kind
The government will publish a call for evidence on exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind, in order to better understand whether their use in the tax system can be made fairer and more consistent.
The government will publish a consultation with proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. This will include proposals for when accommodation should be exempt from tax and to support taxpayers during any transition.
The government will publish a call for evidence to better understand the use of the income tax relief for employees' expenses, including those that are not reimbursed by their employer.
Employers can choose to remunerate their employees in a range of different ways but, in the view of the government, the tax system may treat these forms of remuneration inconsistently. The government is therefore considering how the tax system 'could be made fairer and more coherent'.
Legislation will limit the income tax and employer NICs advantages where:
- benefits in kind are offered through salary sacrifice or
- the employee can choose between cash allowances and benefits in kind.
The taxable value of benefits in kind where cash has been forgone will be fixed at the higher of the current taxable value or the value of the cash forgone.
The new rules will not affect employer-provided pension saving, employer-provided pensions advice, childcare vouchers, workplace nurseries, or Cycle to Work. Following consultation, the government has also decided to exempt Ultra-Low Emission Vehicles, with emissions under 75 grams of CO2 per kilometre.
This change will take effect from 6 April 2017. Those already in salary sacrifice contracts at that date will become subject to the new rules in respect of those contracts at the earlier of:
- an end, change, modification or renewal of the contract
- 6 April 2018, except for cars, accommodation and school fees, when the last date is 6 April 2021.
Employers and employees may wish to review their flexible remuneration packages prior to 6 April 2017.
Changes to termination payments
Changes from 6 April 2018 will align the rules for tax and employer NICs by making an employer liable to pay NICs on any part of a termination payment that exceeds the £30,000 threshold. It is anticipated that this will be collected in 'real-time'.
In addition, all payments in lieu of notice (PILONs) will be both taxable and subject to 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 notice period, even if the employee leaves the employment part way through their notice period. This amount will be treated as earnings and will not be subject to the £30,000 exemption.
Finally, the exemption known as foreign service relief will be removed and a clarification made to ensure that the exemption for injury does not apply in cases of injured feelings.
National Minimum Wage and National Living Wage increases
The Chancellor confirmed that the National Living Wage (NLW) rate will be increased from 1 April 2017. Increases are also being made to the National Minimum Wage (NMW) rates. The NLW applies to workers aged 25 and over. The NMW applies to other workers provided they are at least school leaving age.
||1 October 2016
||1 April 2017
|NLW for workers aged 25 and over
|NMW main rate for workers aged 21-24
|NMW 18-20 rate
|NMW 16-17 rate
|NMW apprentice rate**
* introduced and applies from 1 April 2016
**the apprentice rate applies to apprentices under 19 or 19 and over and in the first year of their apprenticeship.