Employment Income

Termination Payments

The rules relating to the taxation of termination payments are to be tightened from April 2018. This will include introducing legislation to clarify that all payments in lieu of notice and certain damages payments are taxable as earnings and removing foreign service relief. The employer NICs and tax treatments of termination payments will be aligned, so that employers will have to pay NICs on the elements of termination payments that exceed £30,000.

Statutory Exemption for Trivial Benefits in Kind

As originally announced in the Spring 2015 Budget, a statutory exemption is to be introduced for 2016/17 onwards which will allow employers to identify and treat certain low-value benefits provided to employees or former employees as trivial. These benefits will then be exempt from income tax and Class 1A NICs and will not need to be reported to HMRC. The benefit must not be cash or a cash voucher and the cost of providing it must not exceed £50. If the employer is a close company (broadly a company controlled by five or fewer persons) and the employee is a director, there will be an annual cap of £300 on the amount of benefits that can be regarded as trivial.

Extending the Real Time Collection of Tax on Benefits in Kind: Voluntary Payrolling

With effect from 6 April 2017, employers will be able to choose to payroll non-cash vouchers and credit tokens, which had been excluded from the payrolling of benefits-in-kind legislation in Finance Act 2015.

Income Tax: Preventing Liability to Charge being Removed from Certain Taxable Benefits in Kind

A technical change, effective from 6 April 2016, has been made to the wording of the legislation to clarify that the principle of ‘fair bargain’ applies only to general taxable benefits where the taxable amount is based on the cost to the employer of providing the benefit. It does not apply to the taxation of certain benefits in kind which have specific charging rules.

Income from Sporting Testimonials

Professional sportspersons are sometimes granted benefits or testimonials which can consist of a benefit match or a series of events throughout a benefit period. Where the right to a match or benefit period is written into a player’s contract, or where the player’s club always grants the benefit match or period after a set qualifying period of service, the proceeds are taxable as earnings and NICs are payable. Where this is not the case, HMRC’s practice is to treat the proceeds as exempt.

With effect in relation to sporting testimonial events held on or after 6 April 2017 where the testimonial has been awarded on or after 25 November 2015, income arising from a non-contractual or non-customary sporting testimonial or benefit for an employed sportsperson will be liable to income tax and NICs as employment income. This will be subject to an exemption for the first £100,000. The exemption will hold good for 12 months beginning with the date the first testimonial event is held. The previous practice above will continue where the testimonial or benefit was awarded before 25 November 2015, regardless of when it is held.

Employee Share Schemes

A number of changes are to be made to the rules for taxing the award of employment-related securities (ERS) and options to acquire employment-related securities (ERS options). These include the following.

  • A list of events is introduced in consequence of which a plan would cease to qualify as a tax-advantaged share incentive plan (SIP). It has effect in relation to events occurring on or after the date of Royal Assent to Finance Act 2016.
  • Under self-certification of tax-advantaged ERS schemes and ERS option schemes, HMRC must be notified of a scheme by 6 July in the tax year following that in which the first option is granted or, in the case of a SIP, the first shares are awarded. A ‘reasonable excuse’ provision is now to be introduced in relation to notifications made on or after 6 April 2016.
  • The tax advantages of an enterprise management incentive (EMI) option will be preserved where minority shareholders in an EMI scheme exercise so-called ‘tag-along’ rights. These are rights in a takeover to have share options acquired by the offeror and exchanged for share options in the offeror company. This amendment is backdated to 17 July 2013.
  • If a disqualifying event occurs in relation to an EMI option, shares acquired by the exercise of that option are qualifying EMI shares for capital gains tax purposes only if the option is exercised within 40 days (currently) of that event. This is to be increased to 90 days. This has effect in relation to disqualifying events occurring on or after the date of Royal Assent to Finance Act 2016.
  • 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; the new shares will be treated as acquired at the same time as the original shares.
  • A company controlled by an employee ownership trust will now be permitted to operate an EMI scheme. This change is backdated to 1 October 2014.
  • Where restricted stock units (RSUs) are awarded to internationally mobile employees, the charge to tax will arise specifically under the ERS options rules instead of the rules dealing with income tax on earnings. This will have effect in relation to ERS options on and after 6 April 2016, including options acquired before that date. RSUs are arrangements used particularly by US companies to incentivise employees long-term via rewards linked to shares or securities.

Van Benefit Charge for Zero-emissions Vans

The benefit charge for zero-emissions vans will be set at 20% of the charge for conventionally-fuelled vans for the tax years 2016/17 and 2017/18. This defers the planned increase to 40% of the van benefit charge for conventionally-fuelled vans to 2018/19.

The charge will be 60% of the charge for conventionally-fuelled vans in 2019/20, 80% in 2020/21 and 90% in 2021/22. From 2022/23, the charge is 100% of the van benefit charge for conventionally-fuelled vans.

Employment Intermediaries: Tax Relief for Travel and Subsistence

Legislation is being introduced with effect on and after 6 April 2016 to restrict tax relief for travel and subsistence expenses of workers engaged through an intermediary. For workers who personally provide their skills or labour through an employment intermediary (broadly an umbrella company, recruitment agency or employment business), each engagement is to be regarded as a separate employment for the purpose of the rules for income tax relief on travel and subsistence expenses. The result is that daily commuting by such workers will be regarded as ordinary home-to-work commuting and will not qualify for tax relief. The measure does not, however, apply to a worker whose services are not subject to supervision, direction or control by another person.

The above will also apply to a worker operating through a personal service company which is required to operate the so-called IR35 rules, but only to those contracts where a deemed employment payment is made (or would be made were the worker not receiving all his income in the form of employment income). The ‘supervision, direction or control’ exception will not apply in such cases.

Off Payroll Working in the Public Sector: Reform of the Intermediaries Legislation

From April 2017 public sector bodies and agencies will be responsible for operating the tax rules that apply to off payroll working in the public sector. The rules will remain unchanged when individuals are working in the private sector.

Exemption for Employer-provided Pensions Advice

A new income tax and NICs exemption will be introduced for the first £500 of the cost of financial advice on pensions in cases where the advice is arranged by the employer. This will have effect from 6 April 2017.