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Budget 2016 - a run down for payrollers

George Osbourne delivered his budget for 2016 on 16th March. Here are the salient points that payrollers need to be aware of.

Rises in the personal allowance and the higher rate threshold

The Personal Allowance will increase from £10600 in 15/16, to £11,000 on 6th April and then again to £11,500 in April 2017.

The higher rate of Income Tax will increase from £42385 in 15/16, to £43,000 on 6th April and then again to £45,000 in April 2017.

The National Insurance contributions (NICs) Upper Earnings/Profit Limits is aligned to the higher rate threshold and will therefore also increase. More

Employers will pay National Insurance on pay-offs above £30,000 from April 2018

From April 2018 employers will now need to pay Employer’s National Insurance contributions on pay-offs (for example, termination payments) above £30,000 where Income Tax is also due.

For employees who lose their job, payments up to £30,000 will remain tax-free and they will not need to pay National Insurance on any of the payment.

Voluntary payrolling of benefits - extending the real time collection of tax on benefits in kind

This measure enables the payrolling of non-cash vouchers and credit tokens helps to reduce both the employers’ reporting obligations to HM Revenue and Customs and the risk of incorrect tax being deducted.  There will be an article in the April edition of Purely Payroll discussing this and the final legislation for payrolling benefits. More

Setting Company Car Tax (CCT) rates for the 3 years to 2019 to 2020

The Finance Bill 2016 will legislate changes in the appropriate percentage for all cars for 2019 to 2020 and for cars with no registered CO2 emissions, which cannot produce emissions in 2017 to 2018 and 2018 to 2019. More

Van Benefit Charge for Zero Emissions Vans

The measure will retain the 20% tapered rate of the van benefit charge for zero-emissions van, which was set to increase to 40% in 2016 to 2017. The 20% will be extended to 2017 to 2018 tax year.  More

Employee share schemes: simplification

The measure simplifies the law so that a rights issue which takes place on or after 6 April 2016 in respect of shares received on exercise of an EMI option will be treated in the same way for share identification purposes as other rights issues. More

Sporting testimonials - treatment of income from sporting testimonials

This measure confirms that all income from sporting testimonials and benefit matches for an employed sports person will be chargeable to tax, and National Insurance contributions (NICs) subject to a ‘one-off’ exemption of £100,000 of the income received from events held during a single testimonial or testimonial year. More

Pension flexibility 2016

Updated tax information and an impact note applies to members and administrators of registered pension schemes and certain individuals with dependant`s drawdown pensions. More

Class 2 National Insurance contributions for self-employed people scrapped from April 2018

Currently, self-employed people have to pay Class 2 NICs at £2.80 per week if they make a profit of £5,965 or over per year. They also pay Class 4 NICs if their profits are over £8,060 per year.

From April 2018, the self-employed will only need to pay one type of National Insurance on their profits, Class 4 NICs.

Paying Class 2 NICs currently enables self-employed people to build entitlement to the State Pension and other contributory benefits. After April 2018, Class 4 NICs will also be reformed so self-employed people can continue to build benefit entitlement.

New tax allowances for money earned from the sharing economy

From April 2017, there will be two new tax-free £1,000 allowances – one for selling goods or providing services, and one for income from property you own.

People who make up to £1,000 from occasional jobs – such as sharing power tools, providing a lift share or selling goods they have made – will no longer need to pay tax on that income.

In the same way, the first £1,000 of income from property – such as renting a driveway or loft storage – will be tax free.

Off-payroll working in the public sector: reforming the intermediaries legislation

The government announced it will reform the intermediaries legislation (known as IR35) for public sector engagements. More 

Tackling disguised remuneration avoidance schemes

The government will bring forward a package of changes to tackle the use of disguised remuneration avoidance schemes. The first part of the package is being introduced in Finance Bill 2016 and this tax information and impact note (TIIN) deals with those changes. More

Pension’s Advice

The existing Income Tax and National Insurance relief will Increase from £150 for employer-arranged pension advice to £500

Support for parents in employment

A consultation will be launched in May 2016 on how to implement its commitment to extend Shared Parental Leave and Pay to working grandparents.

From early 2017, the government is introducing Tax-Free Childcare to help working parents with the cost of childcare, ensuring more parents who want to can go out to work or increase the number of hours they work. Tax-Free Childcare will be rolled out in such a way that allows the youngest children to enter the scheme first, with all eligible parents brought in by the end of 2017.

The existing scheme Employer-Supported Childcare will remain open to new entrants until April 2018 to support the transition between the schemes. This will sit alongside doubling the free childcare entitlement from 15 hours to 30 hours a week for working families with three and four year olds from September 2017.

National Minimum Wage

From October 2016, the main rate of the NMW, which applies for workers aged between 21 and 24, will increase to £6.95, in line with the Low Pay Commission’s recommendations. The government has also accepted the LPC’s recommendations for the youth and apprentice rates of the NMW.

Salary sacrifice

The government wants to encourage employers to offer certain benefits but is concerned about the growth of salary sacrifice schemes: clearance requests for salary sacrifice arrangements from employers to HMRC have increased by over 30% since 2010. The government is therefore considering limiting the range of benefits that attract income tax and NICs advantages when they are provided as part of salary sacrifice schemes. However, the government’s intention is that pension saving, childcare and health-related benefits such as Cycle to Work should continue to benefit from income tax and NICs relief when provided through salary sacrifice arrangements.  

And finally a new tax break for the under 40s  - a new £4,000 lifetime ISA that you can use to save for retirement or to buy your first home

From April 2017, any adult under 40 will be able to open a new Lifetime ISA. Up to £4,000 can be saved each year and savers will receive a 25% bonus from the government on this money.Money put into this account can be saved until you are over 60 and used as retirement income, or you can withdraw it to help buy your first home. The total amount you can save each year into all ISAs will also be increased from £15,240 to £20,000 from April 2017. More 

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