The Budget was delivered on 11 March 2020 by the new Chancellor. There were several employment tax related announcements for employers to consider, understandably with COVID-19 top of the agenda.
Statutory Sick Pay
The main news was that Statutory Sick Pay (‘SSP’) will be available for employees taking sickness absence from work because of COVID-19. This will be available from day one of their absence rather than from the four-day window usually required.
Furthermore, in current SSP legislation, SSP paid to employees cannot be reclaimed by the employer. However, emergency legislation will shortly be introduced to allow small and medium size businesses to claim a refund of SSP payments, up to a limit, made to employees absent because of COVID-19, even when they do not have a sick note from a GP.
In order to reclaim SSP, the employer must meet eligibility criteria and have fewer than 250 employees, with the size of the employer being determined by the number of people they employed as of 28 February 2020. The government’s intention is to set up the required mechanism for employers to reclaim this as soon as possible.
As the Government continues to announce support for businesses and individuals on COVID-19, we will continue to update the COVID-19 pages of our website with information and useful insights on critical areas. For further information please visit the COVID-19 hub on our website.
Separate from SSP but remaining highly relevant to the impacts of COVID-19 are amounts able to be claimed by employees from their employers in relation to their homeworking expenses.
Where HMRC has accepted an employee’s home is a workplace, under current rules, employers can already make tax and NIC free payments to employees to reimburse them for the actual additional cost of household expenses they incur while working at home under a homeworking arrangement.
However, these additional household costs can be difficult to calculate and substantiate and so, for some time, employers have been able to pay a flat-rate payment of £4 per week tax and NIC free to employees to cover these costs, without the employee or the employer having to validate that amount.
The government has now announced that this rate will increase to £6 per week from 6 April 2020. This is a small but welcome change given that many employees are currently working from home to adhere to government advice on COVID-19.
Company Cars and Vans
Ahead of the brought forward 2035 Government target for all new cars in the UK to emit no CO2 emissions, the government continues to encourage the use of Ultra Low Emission Vehicles (or ‘ULEVs’) by implementing a nil benefit-in-kind for company cars with zero CO2 emissions for the 2020/21 tax year.
These changes are supplemented by the announcement of £403m to be released for the plug-in-car grant extending it up until 2020/23 and, in addition, further investment in electric-car charging points to eventually ensure that no one will ever be more than 30 miles from a charging point. We will of course now have to wait and see how these announcements are affected by COVID-19.
These measures will no doubt encourage many employers to consider the benefits of providing their employees with zero or low emission cars. However, care should be taken in relation to certain ULEVs with low levels of CO2 emissions such as hybrid cars as separate rules will apply. Furthermore, employers seeking to introduce salary sacrifice arrangements for electric and low emission vehicles should take professional advice before introducing such schemes as the rules are complex and areas outside of tax and NIC need to be considered carefully (such as National Minimum Wage compliance, the whole life costs of the lease, the cost of maintenance and insurance etc).
Finally, the government has also announced the following increases to van and fuel benefit charges from 6 April 2020:
- the van benefit charge and the car and van fuel benefit charges will increase by the consumer price index;
- the flat-rate van benefit charge will increase to £3,490;
- the car fuel benefit multiplier will increase to £24,500; and
- the flat-rate van fuel benefit charge will increase to £666.
The Employment Allowance (or ‘EA’) of £3,000 per annum is currently available for employers to offset against their employer’s Class 1 NIC liability.
The good news is that the EA is increasing from 6 April 2020 to £4,000 per annum. However, this increase comes with new restrictions as the new EA must be claimed on an annual basis, and only qualifying employers can claim it.
The big change to the qualifying criteria is that only employers with a total employer’s Class 1 NIC liability of under £100,000 in the tax year immediately before the year of the claim will be able to claim it. A result of limiting the EA to smaller employers in this way is that the EA will be classed as state aid from 6 April 2020.
Don’t forget that for connected companies, only one of the connected companies can claim the EA and it is up to the connected companies to decide which one will claim it. Broadly, if your company has control of, or is under the control of, another company, or both companies are under the control of the same person or persons (for example, companies in a group) these companies are connected.
Finally, in addition to the EA changes, from 6 April 2020 the government will introduce an NIC holiday for employers of veterans in their first year of civilian employment.
As staff welfare is prioritised during the COVID-19 outbreak we are expecting to see many more employees using employer provided counselling services where these are available to employees.
Where welfare counselling services are provided to employees, this can be a tax and NIC free benefit where the counselling meets specific criteria. Please see the HMRC guidance on this. The current relief does not, however, normally cover medical treatment connected with the counselling.
From 6 April 2020, the exemption for employee welfare counselling services is being extended to cover medical treatment provided in association with the employer’s welfare counselling service. While this is another welcome change, we will have to wait and see how this extended exemption will work in practice and which types of medical treatment will qualify.
NIC on termination payments in excess of £30,000
Up to 5 April 2020, the charge on termination payments in excess of £30,000 is limited to income tax only. The new NIC legislation which takes effect from 6 April 2020 will ensure that any termination payment in excess of £30,000, chargeable to income tax, will also attract a Class 1A NIC liability at 13.8 per cent on the balance above the £30,000.
A charge to Class 1A NIC rather than Class 1 NIC means that it is only the employer that suffers NIC and not the employee.
Class 1A NIC is associated with taxable benefits, calculated in line with forms P11D and payable by 19/22 July following the year end. However this new Class 1A NIC liability payable on termination payments will be collected through Real Time Information/PAYE and so will need to be paid and reported to HMRC at the time it arises. HMRC will also legislate to ensure that appropriate late payment interest and penalties are applied when this new Class 1A NIC charge is not correctly paid.
From 6 April 2020, will be payable on any sporting testimonial payment that is liable to income tax and not otherwise subject to NIC.
Update on IR35
And finally IR35. Although the Budget initially confirmed that the new IR35/off-payroll working rules for the private sector will go ahead at 6 April 2020 this was later postponed until 6 April 2021 to support businesses and individuals in light of the COVID-19 pandemic. These new rules would have applied for people outside of the public sector who are contracting their services to large or medium-sized organisations and means the rules that currently apply for those inside and outside the public sector will continue to be in effect until 6 April 2021.
The announcement is a deferral to introduce the reforms and not a cancellation. The government remains committed to introducing this policy to ensure that people working like employees, but through their own limited company, pay broadly the same tax as individuals who are employed directly.