Budget 2021: Employment tax

Unsurprisingly the Chancellors announcements did not include any significant changes to employment taxes. 

The tax information and impact notes did, however, include a technical change to the new off payroll working administrative rules (IR35) which are being introduced from 6 April 2021, and some welcome easements and extensions to previous exemptions introduced because of the coronavirus.   

Off-payroll working rules (IR35)

As previously announced, the off-payroll working rules are being reformed with the changes taking effect from 6 April 2021. Finance Act 2020, which contains the legislation, has already received royal assent.

To prevent workers from avoiding the rules by diluting their own holdings in their personal service companies, the legislation in Finance Act 2020 was drafted in such a way to widen the definition of intermediary going beyond the policy intent. 

If unchanged the rules would have caught any arrangement where the worker operates through a company, even if the payments had already been taxed as employment income, for example, where the worker is an employee of an umbrella company.

There will now be a technical change to the rules, which will apply when the intermediary is a company, and which will limit the scope of this condition to cases where the worker has less than a material interest in the intermediary and the payment received by the worker for the services provided is not already taxed wholly as employment income. However, there will be a targeted anti-avoidance rule (TAAR) to deter attempts to avoid meeting the definition of intermediary to gain a tax advantage. This is in response to stakeholder feedback that some promoters may look for new ways to avoid the conditions. Furthermore:

  • the requirement to confirm whether any of the conditions that needs to be met for an entity to be considered an intermediary are met will also be extended to the intermediary itself where the worker has not already done so (because intermediaries will often be better placed to confirm if these conditions are met); and
  • the provisions relating to fraudulent information will be extended to include any UK-based party in the labour supply chain (rather than just the worker or someone connected to them) - this means that, where someone other than the worker provides fraudulent information claiming that the rules do not apply, the subsequent liability will rest with that party instead of the client organisation or deemed employer.

Employer provided cycles and cyclists equipment

The tax exemption covering an employer’s provision of cycles and cyclist’s safety equipment (often offered under a cycle to work scheme) contains a condition that the equipment should be used mainly for cycling to or from work, or in the course of work.

Many employees will not have been using bikes to travel to work during the coronavirus pandemic. Employees who have joined a cycle to work scheme and have been provided with a cycle or cycling equipment on or before 20 December 2020 will now not have to meet the ‘qualifying journeys’ condition until after 5 April 2022. This measure has effect on and after the date of royal assent to Finance Bill 2021 and will apply retrospectively.

Employees who join a cycle to work scheme from 21 December 2020 will need to meet all the normal conditions of the exemption.

Coronavirus antigen tests

Employers who choose to provide their employees with, or reimburse them for the cost of a relevant coronavirus antigen test will be pleased to hear that the existing income tax and National Insurance contributions (NICs) exemptions for such tests that were introduced during the 2020 to 2021 tax year, will now apply to the 2021/22 tax year too.

This will ensure that employees who are provided with, or reimbursed for the cost of, a relevant coronavirus antigen test by their employer in these tax years will not be liable to an income tax or NICs charge. Additionally, employer’s will not be required to pay employer’s NICs on such costs during these tax years either.

Employees’ home office equipment

With many employees working from home during the coronavirus pandemic, employers have had to reimburse employees for the cost of home office equipment they need to enable them to work from home.

While an existing tax exemption (s316 Income Tax (Earnings and Pensions) Act (ITEPA) 2003) can apply (subject to conditions being met) where an employer provides home office equipment to an employee and retains ownership of that equipment, this does not extend to employer reimbursements for such equipment.

To address this an exemption was introduced last year to ensure that employer reimbursements for the cost of home office equipment are exempt from income tax and NICs where:

  • the equipment is obtained for the sole purpose of enabling the employee to work from home because of the coronavirus; and
  • the provision of the equipment would have been exempt under s316 ITEPA 2003 (see above) if it had been provided by the employer.

This exemption originally applied only up to 5 April 2021, but it has now been confirmed that it will be extended to 5 April 2022.

Company vans and cars

As expected, the van benefit charge and the car and van fuel benefit charges will be increased by the consumer price index from 6 April 2021.

For 2021/22, the van benefit charge will increase to £3,500 (it is currently £3,490), the multiplier for the car fuel benefit will increase to £24,600 (it is currently £24,500), and the van fuel benefit charge will increase to £669 (it is currently £666).

For more information please contact

Susan Ball Susan Ball

Partner

Lee Knight Lee Knight

Employer Solutions Director