Budget summary 2017

Employees

Salary sacrifice

Employees and employers have been able to gain a tax advantage from the different tax treatments of cash salary and benefits in kind. A 'salary sacrifice' scheme involves replacing cash salary with a benefit that is more advantageously taxed, resulting in a saving where such a benefit would otherwise have been purchased from after-tax cash pay. These tax and NIC advantages are to be withdrawn from 6 April 2017. Arrangements involving pensions, childcare, Cycle to Work and ultra-low emission cars will retain their advantages. Existing arrangements will be protected for a transitional period until the earlier of revision or renewal of the contract or 6 April 2018, and existing arrangements for cars, accommodation and school fees will be protected until April 2021.

Making good

An employee who repays to their employer, or 'makes good', the cost of a benefit, avoids a tax charge. As previously announced, for benefits provided in tax year 2017/18, such making good will have to take place by 6 July in the following tax year (i.e. 6 July 2018) to cancel the tax charge.

'Off payroll' and disguised remuneration

HMRC has been concerned about individuals working through Personal Service Companies (PSCs) and similar arrangements for two decades: they regard this as a way of avoiding PAYE and Class 1 NIC where 'in reality' (in HMRC's view) the individual is acting as an employee. Several different attempts have been made over the years to counter this, generally imposing a liability on the PSC to account for tax on its income as if it were received by an employee (with a 5% deduction to allow for expenses). From 6 April 2017, where the individual behind the PSC works in the public sector, the responsibility for paying this tax will be transferred to the person making the payment to the PSC. The 5% deduction will not apply in these circumstances, but genuine employment expenses can be taken into account.

Further measures are also being introduced to counter disguised remuneration schemes used by self employed people, and employers will be discouraged from contributing to such schemes by being denied a deduction for the expense unless tax and NIC are paid within a specified period. Some of these changes apply from April 2017, some from Royal Assent to the Finance Act 2017, while some are subject to consultation for later implementation.

Company cars (Table C)

There was nothing in this Budget about the taxation of company cars, which means that the significant changes announced last year will take effect. Most drivers of company cars will see increases in their taxable benefits.

Termination payments

As announced last year, from April 2018 termination payments over £30,000, which are subject to Income Tax, will also be subject to employer's NIC. Payments in lieu of notice will also become subject to tax in all circumstances, rather than potentially qualifying for the £30,000 exemption. The first £30,000 of a genuine termination payment will remain exempt from tax and NIC.

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