The Budget 2010 commentaries - employers tax
"The commentaries below are written in general terms. Details can also be found in our downloadable Budget Report brochure. You are strongly recommended to seek specific advice before taking any action based on the information given, both in the commentaries and in the publication."
Anti avoidance – earnings paid through trusts or other entities
Legislation will be introduced with effect from 6 April 2011 to counter avoidance arrangements involving Employee Benefit Trusts and other similar intermediaries designed to disguise payments of remuneration.
Comment
The issue for HMRC will be to filter out entirely innocent arrangements and other permissible structures from those considered abusive. Where such a line might be drawn however is by no means clear; hence presumably the need felt for lengthy consideration.
Taxable benefit charges on zero emission vehicles
Company car & van tax – vehicles with zero CO2 emissions
From 6 April 2010 until 5 April 2015 company cars and vans that cannot produce any CO2 engine emissions when driven will no longer give rise to any taxable benefit when made available to employees for private use.
Comment
This change was flagged in the PBR last December but the measure was framed in slightly different terms. It was understood that the change was to apply to electric cars and vans; now, however, the measure will include all vehicles that cannot produce any CO2 engine emissions when driven. The change supports the Government’s stated commitment to decreasing greenhouse gas emissions. It is worth noting that the employer will also benefit from this measure as there will be no Class 1A NIC liability arising from these benefits either.
Taxable benefit charges on zero emission vehicles and low emission cars
A new appropriate percentage rate band is to be introduced for company cars with very low CO2 emissions. From 6 April 2010 until 5 April 2015 the appropriate percentage applied to a car’s list price to determine the taxable benefit where the car’s CO2 emissions are 75 g/km or less will be 5%.
Comment
Again, this change supports the Government’s stated commitment to decreasing greenhouse gas emissions. Changes such as this have been flagged well in advance over recent years so this comes as something of a surprise.
Employer-supported childcare
There is an intention that the qualification criteria for exempt treatment of employer provided childcare will be relaxed with retrospective effect to eliminate an anomaly. The Government intends to legislate this measure in a Finance Bill to be introduced as soon as possible in the next Parliament.
Statutory exemption is currently provided where employers provide employees with childcare vouchers or directly contracted childcare. A number of conditions have to be satisfied to qualify, one of which is that the arrangements should be available generally to staff. When an employer provides these benefits under salary sacrifice arrangements it is necessary to exclude staff who, by taking up the offer, would reduce their salary below the National Minimum Wage. The intended change would qualify the ‘available generally’ condition so that exclusion of employees by reference to the National Minimum Wage would not lead to denial of exemption for the employer-provided childcare. When the law is changed it will have retrospective effect back to 2005/06.
Comment
It seems likely that compliance checking activity by HMRC has given rise to disputes over the application of exempt treatment by employers where employees on low wages have been excluded from salary sacrifice arrangements that include the provision of childcare benefits. A pragmatic ‘policy’ decision seems to have been taken to deal with this unintended consequence. Even if the law is not changed immediately, the stated intention to do so retrospectively should be enough to resolve any existing employer disputes with HMRC in this area and stop any further disputes arising.
Company Share Option Plans (CSOP): Anti-avoidance
Legislation will be introduced in Finance Bill 2010 to prohibit CSOP options being granted over shares in an unlisted company which is a subsidiary of a listed company. There will be transitional provisions such that, in effect:
- options granted in such companies after 24 March 2010 will not be approved options; but
- options granted before that date will be capable of retaining approved status.
Comment
However, the Government has chosen to legislate not by banning these kinds of shares for CSOPs, but rather by preventing subsidiaries in listed companies from granting approved options over any of their shares. It is already the case that unlisted subsidiaries of unlisted parents cannot enjoy CSOP options, so those companies may feel rough justice is being achieved.
The unfortunate consequence of the change is that schemes run in qualifying subsidiaries for entirely commercial and proper reasons will no longer be able to enjoy approval.
Review of HMRC Powers, Deterrents and Safeguards: Security for payment of PAYE
Security required from employers for PAYE and NICs
Legislation will be introduced in Finance Bill 2010 to take effect from 6 April 2011. This legislation will allow HMRC to require financial security from employers who have a history of serious non-compliance and where HMRC consider there to be risk of amounts due under PAYE or NIC, either being paid late or not being paid at all.
Comment
There will be a 12 week consultation on the regulations before they are finalised. The intention is that HMRC will have the power to require financial security based on the level of the potential risk. The failure to provide the security when required to do so will be a criminal office with a penalty of up to £5,000. The employer will have the right to appeal.
The regulations will bring PAYE and NICs in line with VAT where similar powers already exist and are exercised by HMRC.
It has been confirmed that the measures are not aimed at employers who require time to pay and make arrangements in advance with HMRC.