Employer provided cars

The scale of charges for working out the taxable benefit for an employee who has use of an employer provided car are now announced well in advance. From 6 April 2014, the bands used to work out the taxable benefit remain the same but the percentage applied by each band goes up by 1%. There is an overriding maximum charge of 35% of the list price of the car. From 6 April 2015, the percentage applied by each band goes up by 2% and the maximum charge is increased to 37%.

Comment

These increases have the perverse effect of discouraging retention of the same car. New cars will often have lower CO2 emissions than the equivalent model purchased by the employer, say three years ago. Particular attention should be paid to the benefit increase from 6 April 2015.

Car fuel benefit charge

Employees and directors who are provided with an employer provided car and who also receive free private fuel from their employers are subject to the fuel benefit charge. The benefit charge is determined by multiplying a set figure by the appropriate percentage for the car, based on its CO2 emissions.

The car fuel benefit charge multiplier will be increased from £21,100 to £21,700 with effect from 6 April 2014.

Vans

For 2014/15 the private use of a company van will result in a benefit assessable on the employee of £3,090, an increase on the current benefit of £3,000. The charge will not apply to vans which cannot emit CO2 or if a restricted private use condition is met throughout the year. If fuel for private purposes is also provided, a benefit of £581 will be assessable on the employee.

Exemption threshold for employment-related loans

Where an employer provides an employee with a cheap or interest free loan they have to report notional interest on the loan at 4% per annum on the form P11D. Where the balance of the loan is no more than £5,000 throughout the tax year no benefit is reportable.

The exemption applies if the total balance, at any point in the tax year, does not exceed the limit of £5,000 and includes the total of low cost or interest free loans, or notional loans arising from the provision of employment-related securities.

From 6 April 2014 where the total outstanding balances on all such loans do not exceed £10,000 at any time in the tax year, there will not be a tax charge and employers will no longer be required to report the benefit to HMRC.

Comment

This change reflects the increase in the cost of commuting for an employee and allows the employer to provide finance for the purchase of season tickets for rail fares.

National Insurance - £2,000 employment allowance

The Government will introduce an allowance of up to £2,000 per year for many employers to be offset against their employer Class 1 National Insurance Contributions (NIC) liability from April 2014. The legislation is contained in the National Insurance Contributions Bill 2013.

There will be some exceptions for employer Class 1 liabilities including liabilities arising from:

• a person who is employed (wholly or partly) for purposes connected with the employer's personal, family or household affairs
• employer contributions deemed to arise under IR35 for personal service companies.

There are also rules to limit the employment allowance to a total of £2,000 where there are 'connected' employers. For example, two companies are connected with each other if one company controls the other company.

The allowance is limited to the employer Class 1 NIC liability if that is less than £2,000.

It is expected that the allowance will be claimed as part of the normal payroll process. Employer's payment of PAYE and NIC will be reduced each month to the extent it includes an employer Class 1 NIC liability until the £2,000 limit has been reached.

Employer NIC for the under 21s

From April 2015 the Government will abolish employer NIC for those under the age of 21. This exemption will not apply to those earning more than the Upper Earnings Limit, which is £42,285 per annum for 2015/16. Employer NIC will be liable as normal beyond this limit.

Tax exemption for employer funded occupational health treatments

As announced at Budget 2013 the Government will introduce a tax exemption for amounts up to £500 paid by employers for medical treatment for employees. Following consultation the Government will extend the exemption to medical treatments recommended by employer arranged occupational health services in addition to those recommended by the new Health and Work Service.

Employee ownership

Following a consultation the Government will introduce three new tax reliefs to encourage and promote indirect employee ownership. The reliefs are as follows:

• From April 2014 disposals of shares that result in a controlling interest in a company being held by an employee ownership trust will be relieved from CGT.
• Transfers of shares and other assets to employee ownership trusts will also be exempt from inheritance tax providing certain conditions are met.
• From October 2014 bonus payments made to employees of indirectly employee owned companies which are controlled by an employee ownership trust will be exempt from income tax up to a cap of £3,600 per annum.

Share Incentive Plans (SIP)

From 2014/15 the individual limits on the 'free' shares companies can award to employees will be increased from £3,000 to £3,600 per year. The individual limit on the 'partnership' shares employees can purchase will be increased from £1,500 to £1,800 per year.

Save as You Earn (SAYE)

The amount that an employee can save and apply towards the purchase of shares for 2014/15 will be increased from £250 to £500 per month.

Real Time Information (RTI) late filing and late payment penalties

RTI requires employers operating PAYE to report information on employees' pay and deductions in 'real time' to HMRC. Under RTI employers are obliged to tell HMRC about payments they make to their employees, on or before the date payments are made. Employers continue to pay over to HMRC the sums deducted from their employees under the PAYE system either monthly or quarterly.

HMRC have introduced a new penalty regime for RTI to encourage compliance with the information and payment obligations. The penalty regime will apply from 6 April 2014.

In essence late filing penalties will apply to each PAYE scheme, with the size of the penalty based on the number of employees in the scheme. Monthly penalties of between £100 and £400 will apply to micro, small, medium and large employers.

Each scheme will be subject to only one late filing penalty each month regardless of the number of returns due in the month. There will be one unpenalised default each year with all subsequent defaults attracting a penalty. Penalties will be charged quarterly and subject to the usual reasonable excuse and appeal provisions.

A new employer will not receive a late filing default provided the first RTI return is filed within 30 days of making the first payment to an employee.

HMRC have the option of charging further tax geared 'extended failure' penalties where a return is more than three months late. The penalty will be 5% of the amount due on the late return.

Changes will be made to the late payment penalty regime, which is based on the number of late payments relating to each tax year. Where an employer pays over a sum that is within £100 of the total shown as due to HMRC from the RTI returns filed for the tax period, no late payment penalty will arise.

HMRC will send a late payment penalty notice quarterly in July, October, January and April, if necessary.