The People Bulletin

Further to The People Bulletin’s popular story last week ‘Giant leap for tax simplification – the Budget highlights’ last week we have teamed up with The Chartered Institute of Payroll Professionals (CIPP)[1] have provided some helpful comments on how the changes affect the payroll. 

New tax changes announced in Budget 2011 to be included in the 2011 Finance Bill

Company car tax rate 2013-14 — Legislation will be introduced in Finance Bill 2011 to reduce the appropriate percentages by one per cent for all vehicles with carbon emissions between 95g and 220g from April 2013. Zero emissions cars will remain at zero per cent and ultra low emissions cars with emissions up to 75g will remain at five per cent.

Fuel benefit charge 2011-12 — Employees and directors who are provided with a company car and who also receive free fuel from their employers are subject to the fuel benefit charge known as the fixed fuel benefit multiplier which is multiplied by he car's CO2 emission rating. The fixed multiplier will increase from £18,000 to £18,800 with effect from 6 April 2011. 

Approved mileage allowance payments rates from 2011-12 — Where employees use their own cars for business mileage they can claim reimbursement from their employers through the approved mileage allowance payments rates (AMAPs) which is not regarded as a taxable benefit. There is currently a higher rate of 40p per mile for the first 10,000 miles of business use and 25p per mile thereafter. The chancellor has announced that he will increase the higher rate of 40p to 45p from 6 April 2011.  He has also said that the legislation in place for employees for the passenger rate of 5p will be extended to include volunteers where they claim the AMAP rates. 

Corporation tax rates — Legislation will be introduced in Finance Bill 2011 to reduce: 

• the main rate of corporation tax to 26% for the financial year commencing 1 April 2011;
• the main rate of corporation tax to 25% for the financial year commencing 1 April 2012; and
• the small profits rate of corporation tax to 20% from the financial year commencing 1 April 2011.

Business rate discounts in Enterprise Zones — At the Budget, the government announced the creation of 21 new Enterprise Zones. The government will offer up to 100% business rate discount for five years to businesses located in Enterprise Zones. 

Extend small business rate relief (SBRR) holiday — The SBRR holiday will be extended by one year from 1 October 2011.

Gift Aid donor benefit limits — Legislation will be introduced in Finance Bill 2011 to increase, from £500 to £2,500, the maximum value of the benefits that individuals and companies may receive as a result of making a donation to a charity of more than £10,000 under Gift Aid. The new limit will be subject to the existing rule that the benefit must not exceed five per cent of the gift. HMRC will also publish revised guidance in April 2011 on Gift Aid benefits to clarify a number of issues and misunderstandings that have become apparent following discussions with stakeholders.

Time to pay — Budget 2011 also confirmed that HMRC will continue through its Business Payment Support Service to provide advice and time to pay to viable businesses experiencing temporary financial difficulty. The service was launched at Pre Budget Report 2008 and is available for all HMRC taxes, including VAT, corporation tax, income tax and NICs (PAYE). 

OTS review of reliefs and government response — The Office of Tax Simplification (OTS) was commissioned by the chancellor to undertake a review of the reliefs and allowances available in the tax system. The OTS published their final report on 3 March 2011 in which they recommended abolishing a number of reliefs.[2] Some of these reliefs have no further use, some are poorly targeted and several have an administrative burden that outweighs their benefit. The Government welcomes the recommendations and, based on the findings of the OTS and ongoing work by HMRC, intends to abolish a number of reliefs in the Finance Bill 2011.  Those that impact payroll will be abolished in future years and are shown below. 

• Cycle to work days – provision of meals.
• Late night taxis.
• Luncheon vouchers.
• Disregard for certain apprentices and students coming to the UK.
• Class 1A NICs – exemption for prescribed general earnings.
• Life assurance premiums paid by employers under E-FRBS.
• Compensation for mis-sold pensions. 

Previously announced measures included in the Finance Bill 2011

Review of HMRC powers, deterrents and safeguards security for PAYE and National Insurance contributions — Legislation will be introduced in Finance Bill 2011 to provide a power allowing HMRC to make regulations enabling them to require a security from employers for PAYE and NICs that is seriously at risk of non-payment. It will also introduce a criminal offence for not providing a security when one is required. Draft Finance Bill clauses, together with draft regulations, were published for consultation on 9 December 2010. No changes have been made to the primary legislation. However, the regulations will be amended, taking account of comments received to ensure that time to pay arrangements are considered before a security is enforced. A response document will be published on 31 March 2011. 

Employer-supported childcare: changes to tax reliefs — Legislation is being introduced in Finance Bill 2011 to restrict the level of tax relief available to higher earners who join employer-supported childcare schemes from 6 April 2011. As a result of the consultation on the draft legislation, a minor technical change is being made to the legislation in respect of excluded amounts for “relevant income”. 

Restricting pensions tax relief — The government announced on 14 October 2010 that the annual allowance for tax relief on pension savings for individuals will be reduced from £255,000 to £50,000 from 2011-12, and the lifetime allowance will be reduced from £1.8m to £1.5m from 2012-13. Draft legislation was published for comment on 9 December 2010. Following consultation, the government published additional draft legislation on 3 March 2011 containing provisions to enable individuals to meet high annual charges from their pension benefits. Individuals with charges above £2,000 will be able to elect for their liability to be met from their pension benefit. In these situations, the tax will be paid at the point the charge arises. A Summary of Responses document and an updated Tax Information and Impact Note were also published on 3 March 2011. The legislation introduced in Finance Bill 2011 will include revisions that reflect comments on the draft legislation, ensuring the legislation meets the stated policy objectives.

Pensions annuitisation — Legislation will be introduced in Finance Bill 2011 to remove the effective requirement to annuitise by age 75 from April 2011. This will include changes to the annuitisation requirements, income drawdown pension arrangements and the related inheritance tax rules. During the consultation on draft clauses some unintended differences in the pensions and lump sums payable before and after age 75 were identified. Changes have been made to the legislation to remove these differences. Savers who have reached age 75 will also be allowed to align multiple drawdown pension funds under the same scheme so the funds can all be valued annually on the same date. 

Disguised remuneration — Legislation will be introduced in Finance Bill 2011 to tackle third party arrangements which seek to avoid or defer the payment of income tax or national insurance contributions due on employment income or avoid restrictions on pensions tax relief. A draft schedule to enact this measure was published on 9 December 2010. Representations have been received from business, representative bodies and professional advisors. In the light of these the government has amended the draft legislation to limit impacts on employers and individuals where it is possible to identify arrangements that cannot be used for tax avoidance purposes. The changes made include exclusions for group company transactions and certain short-term loans as well as arrangements relating to deferred remuneration, defined employee car ownership schemes, further employment-related securities schemes and protecting legacy pension savings within these  arrangements. 

Subsistence Allowances paid to experts seconded to European Union bodies located in the UK — As announced in a written ministerial statement made by the Exchequer Secretary to the Treasury on 16 December 2010 legislation will be introduced in Finance Bill 2011 to create an income tax exemption where subsistence allowances are paid to experts seconded to EU bodies located in the UK. Under the normal rules subsistence allowances are taxable as employment income. Experts seconded to EU bodies in other European member States are not normally taxed on any subsistence allowance they receive from the EU body. This measure will ensure that those on secondment to a body in the UK are not at a disadvantage. The exemption will apply in relation to subsistence allowances paid for any period commencing on or after 1 January 2011. A statutory instrument containing Regulations to create the associated NICs disregard will be made on or before 6 April 2011.

Reduction in the contracting out rebate — The Department for Work and Pensions announced on 3 February 2011 details of the contracted-out rebate percentage rates that will apply to defined pension schemes from 2012. The new rates were laid in a draft order on the same day. The new rebate will mean that from April 2012 if an individual is contracted out of the state second pension, the employer and the employee will pay more national insurance contributions. This is because the employer’s rebate will reduce from 3.7% to 3.4% and the employee’s rebate will reduce from 1.6% to 1.4%.

New tax changes announced in Budget 2011 for future years 

Income tax personal allowances for 2012-13 — Legislation will be introduced in Finance Bill 2012 to set the personal allowance for those aged under 65 at £8,105 and the basic rate limit at £34,370. All other income tax, personal allowances and limits that are subject to indexation will be increased in line with the retail prices index. 

CPI indexation of national Insurance contributions rates, limits and thresholds - From 2012 -13 the Consumer Prices Index (CPI) is to replace the Retail Prices Index (RPI) as the default indexation for all national Insurance contributions rates, limits and thresholds: 

• Class 1 lower earnings limit and primary threshold;
• Class 2 small earnings exception;
• Class 4 lower profits limit; and
• Rates of Class 2 and 3. 

The secondary threshold will be over-indexed when compared to CPI and will continue to rise by the equivalent of RPI from April 2012 until 2015-16. 

Income tax and NICs reform — The government has announced that it will consult on the options, stages and timing of reforms to integrate the operation of income tax and National Insurance contributions (NICs). In exploring potential reforms the government aims to remove distortions created by the tax system, reduce burdens on business and improve fairness for individuals. However, it recognises that any change will be complex and involve a wide range of policy and implementation issues. A consultation document will be published later this year setting out the differences in the current income tax and National Insurance systems, and options to address these. The government will maintain the contributory principle and reflect this in any changes it brings forward. The government will not extend NICs to individuals above state pension age or to other forms of income such as pensions, savings and dividends. 

Gift aid: records for small donations — From April 2013 charities (and community amateur sports clubs) that receive small donations of £10 or less will be able to apply for a gift aid style repayment without the need to obtain gift aid declarations for those donations. The amount of small donations on which the new repayment can be claimed will be capped at £5,000 per year, per charity. In order to qualify for this new repayment, charities will need to have been recognised by HMRC for gift aid purposes for at least three years, have been operating gift aid successfully throughout that time and have a good tax compliance record. The Government will be consulting with charity representatives on the details of the new scheme over the summer 2011.

Gift aid: online filing — In 2012-13 HMRC will introduce a new online system for charities to register their details for gift aid and to make gift aid claims. As a first step towards this, HMRC will publish four new "intelligent" forms for charities to use.The forms contain automatic checks to improve the accuracy of information and reduce administrative burdens. HMRC has worked with the charity sector to develop the new forms and will work with the sector to develop the new online system. HMRC will also work with the charity sector to develop a supporting electronic gift aid database for gift aid declarations. 

In-year repayments of income tax to charities — The government will publish draft Finance Bill clauses in the autumn that will give statutory effect to an existing extra statutory concession (ESC). Under this ESC, HMRC currently makes certain repayments of tax to charitable companies and certain charitable trusts that make a claim to repayment of tax outside a tax return (“in-year claims”). 

Fuel duty rates — The fuel duty escalator that was first announced in Budget 2009 will be abolished and replaced with a fair fuel stabiliser. When oil prices are high, as now, fuel duty will increase by the retail prices index (RPI). However, if the oil price falls below a set trigger price on a sustained basis, the government will increase fuel duty by RPI plus one penny per litre. The government believes that a trigger price of $75 per barrel would be appropriate, and will set a final trigger price and mechanism after seeking the views of oil and gas companies and motoring groups. Legislation will be introduced in Finance Bill 2012 to amend fuel duty rates further as follows: 

• the 2012-13 increase will be implemented on 1 August 2012;
• on 1 August 2012 the effective rate of duty for non road fuels will rise in proportion to the main fuel duty rate; the duty increases on natural gas will maintain the differential with the main road fuels, and the differential for road fuel gas other than natural gas will be reduced by the equivalent of one penny per litre of petrol; and
• on 1 August 2012 the duty rate for leaded petrol will increase by the same monetary amount as main fuel duty, and the duty rate for aviation gasoline will rise in proportion to the main fuel duty rate.

Listed tax avoidance schemes — The government is aware of continued marketing and use of avoidance schemes which are believed not to deliver the tax advantages advertised. This measure seeks to reduce the cash flow advantage from using certain avoidance schemes. The aim is to deter the use of such schemes by listing them in regulations and attaching statutory consequences to their use. The document Tackling Tax Avoidance contains more details of this measure.[3] A consultation document will be issued in May 2011 to be followed by draft legislation for inclusion in Finance Bill 2012. 

Tax treaties anti-avoidance — The government intends to introduce an anti-avoidance measure in Finance Bill 2012 that would ensure that relief or exemption from UK tax is not given where a claim is made under the UK’s double taxation treaties and where arrangements have been made in relation to the claim to avoid UK tax. It is aimed at: 

• UK residents (individuals, trustees and companies) who use tax avoidance schemes; and
• overseas residents (often based in countries with which the UK does not have a tax treaty) who enter into arrangements to obtain benefits under the UK’s double taxation treaties where they are not properly due.  

Such an approach would be in accordance with generally accepted international principles as set out by the OECD in the commentary to its Model Tax Convention.[4] The government will be consulting on this measure and it will invite representations on the draft clauses when they are published in the autumn. 

Employer asset-backed pension contributions — The government will consult on changing tax rules to limit the amount of tax relief available to employers when they make asset-backed contributions to their defined benefit pension schemes so that the tax relief accurately reflects the increase in fair value of pension plan assets, whilst maintaining flexibility for employers and schemes. The consultation document will be published in spring 2011. Subject to the consultation, legislation will be introduced in Finance Bill 2012.  

[1] Further details about the CIPP are available from www.cipp.org.uk/en/membership 

[2] www.hm-treasury.gov.uk/d/ots_review_tax_reliefs_final_report.pdf 

[3] http://cdn.hm-treasury.gov.uk/2011budget_taxavoidance.pdf 

[4]  www.oecd.org/document/37/0,3343,en_2649_33747_1913957_1_1_1_1,00.html