2016 Budget: Tax and Payroll

Believe it or not, last week's Budget covered more than just the Sugar Tax and the controversial changes to disability benefits. You can find all of HMRC's Budget documents here and all of HM Treasury's Budget documents here - the Overview of Tax Declarations and Rates is here and the full Budget document itself is here, but we've summarised some of the main changes affecting higher education below. The Finance Bill will be published on 24 March.

The headlines seem to be in employment taxes where there will be increased complexity and cost around engaging personal service companies, and increased costs for employers around termination payments.

Employment Taxes:

Public sector engagers (including universities) who engage workers through Personal Service Companies will become responsible for determining whether the intermediaries legislation applies and then collecting the relevant tax and NICs. As we had met with HMRC to discuss this in the autumn, HMRC contacted us directly about this announcement on Budget day, and the sentence from the Techncial Note that they quoted in their email was "Public sector bodies have a responsibility to taxpayers to ensure that the people working for them are paying the right tax". HMRC's technical note can be found here, and a consultation will be held in the summer.

The Office of Tax Simplification has been commissioned to review the impact of moving employees’ NIC to an annual, cumulative and aggregated basis and moving employer’s NICs to a payroll basis, following their recent report on alignment of NIC and PAYE.

From 6 April 2017 employers will be able to payroll non-cash vouchers and credit tokens. From 6 April 2016 employers can voluntarily payroll a range of benefits, including the provision of company cars and medical insurance, and this announcement will extend the range of benefits which can be payrolled from the following year. Instead of reporting benefits on form P11D for inclusion in employees’ PAYE codes, tax is collected during the tax year through the employer’s payroll.

From April 2018, HMRC will tighten the scope of the £30,000 exemption for termination payments and align the income tax and NICs rules so employer NICs are due on those payments above £30,000 that are already subject to income tax. Employee NICs will not be due. This will increase costs for employers.

The government will review limiting the range of benefits that attract reduced income tax and NICs when provided as part of salary sacrifice schemes. However, this will not affect salary sacrifice for pension saving, childcare and health-related benefits such as Cycle to Work. No time has been given for when the review or consultation will take place.

Following a consultation in the autumn, the government has analysed the responses and concluded that although there are complexities, the current travel and subsistence expenses rules work well for the majority of employees, so no changes will be made to the employee travel and subsistence expense rules.

The new mandatory National Living Wage (NLW) will come into effect from 1 April 2016, at £7.20 an hour for those aged 25 or over. This represents a £900 cash increase in earnings for a full-time worker on the current National Minimum Wage.

The apprenticeship levy was confirmed, but no additional details were provided.

Corporation Tax:

The main rate of corporation tax will be cut to 17% by 2020, which may go some way towards reducing possible tax costs arising from the changed guidance on subsidiary gift aid payments.

Corporation tax loss relief will be reformed from 1 April 2017 so that carried forward losses can be used against profits from other income streams and group companies. The amount of losses that can be offset will be restricted to 50% of the amount of profit that could be offset through the use of losses carried forwards (for those groups with profits in excess of £5m).

VAT and Indirect Taxes:

The standard rate of IPT will increase by 0.5% to 10% from 1 October 2016, increasing costs for universities on the insurance cover for a variety of 'non-life' insurance policies including buildings.

The Carbon Reduction Commitment (CRC) will be removed by the end of 2018-19, reducing a lot of administrative burden for universities. However, in a 'fiscally neutral' move the rate of Climate Change Levy will increase (though it appears that the relief for domestic and non-business use will remain).

From the 1 April 2016 the VAT registration threshold will increase from £82,000 to £83,000 and the deregistration threshold from £80,000 to £81,000.

Business Rates:

The mandatory 80% business rates relief for charities will be maintained. 

There will be more frequent business rate revaluations  (every three years).

There are also other changes regarding how business rates will be collected and by 2022, local authority business rate systems will be linked to HMRC digital tax accounts so that businesses can manage their rates bills and other taxes in a single place. 

Other

The government also announced the introduction of £25k loans for PhDs, starting in the 2018-19 academic year. There's a good summary in an article in the Times Higher.