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March 25—Personal income tax thresholds, company car rates and the tax treatment of certain benefits would be altered under Finance Bill 2016, published March 24 by the U.K. Treasury.
Heavily focused on closing tax loopholes, the Finance Bill follows the March 16 presenting of the 2016 Budget by U.K. Chancellor of the Exchequer George Osborne.
The bill, published March 24 by the U.K. Treasury, proposes a number of changes announced in the 2016 Budget, the 2015 Autumn Statement and the 2015 Summer Budget and excludes some items previously proposed.
The Finance Bill would increase the personal income tax standard allowance limit beginning in April 2017 to 11,500 pounds ($16,248) from 11,000 pounds ($15,541).
The bill also would increase the ceiling for the lowest income tax bracket to 33,500 pounds ($47,332) from 32,400 pounds ($45,777) and the higher rate of income tax threshold to 45,000 pounds ($63,580) from 42,385 pounds ($59,885), both beginning April 2017.
The tax rates would remain unchanged under the Finance Bill.
Certain employer-provided benefits, specifically company cars and vans, living accommodations and loans cannot be considered “fair bargain” and are, therefore, taxable under the proposal.
The notion of fair bargain is applicable when an employee has received goods or services from their employer at exactly the same cost, terms and conditions as a member of the public. It is not considered taxable or a benefit in kind.
There previously was uncertainty about the application of fair bargain but the Finance Bill attempts to “put this matter beyond doubt.”
The tax rates for company cars and vans were proposed for future years.
The level of chargeable benefit for company car tax for employees and Class 1A National Insurance Contributions for employers is determined by the government-issued appropriate percentage multiplied by the list price of the car. The appropriate percentage amount is determined by a variety of factors, including the car's CO2 output per kilometer.
The proposed appropriate percentage for CO2 emitting cars ranges from 16 percent to 37 percent for 2019-2020.
The proposed appropriate percentage for non-CO2 emitting cars ranges from 7 percent to 9 percent in 2017-2018 and 9 percent to 13 percent for 2018-2019.
The appropriate percentage for diesel cars currently ranges from 8 percent to 37 percent but this will increase to 10 percent April 6, 2016. The proposed appropriate percentage would maintain a diesel supplement of 3 percentage points to the appropriate percentage that was previously scheduled to be abolished April 6, 2016.
The proposed appropriate percentage for non-CO2 emitting vans will remain 20 percent of the normal van benefit charge for 2016-2017 and 2017-2018 but will increase to 40 percent in 2018-2019, 60 percent in 2019-2020, 80 percent in 2020-2021, 90 percent in 2021-2022 and 100 percent in 2022-2023.
The Finance Bill proposes legislation that would restrict tax relief for travel expenses of workers providing services through employment intermediaries, such as employment agencies, effective April 6, 2016. Previously announced in the 2015 budget, the legislation is an effort to prevent tax relief for “regular commute from home-to-work” that is generally not available to other workers.
A proposed amendment would allow employers to voluntarily account for noncash vouchers and credit tokens provided to employees through the Pay As You Earn (PAYE) system
The 2015 Finance Act introduced legislation allowing employers to voluntarily use PAYE withholding for some benefits in kind from April 6, 2016, yet noncash vouchers and credit tokens were originally excluded from that legislation.
If approved, employers would be able to choose to use PAYE for noncash vouchers and credit tokens from April 6, 2017.
The 2016 Finance Bill did not include a number of measures mentioned by U.K. Chancellor of the Exchequer George Osborne's 2016 Budget.
The budget proposed a measure to require employers to pay national insurance contributions on termination payments that exceed 30,000 pounds ($42,387) beginning April 2018. Under current law, employers and employees are both exempt from national insurance contributions on termination payments. The government said it would be included in Finance Bill 2017, expected to be released in March 2017.
The bill also does not include any legislation on changes to the concept of salary sacrifice for benefits in kind, in which employees agree to the inclusion of certain employee benefits in an employee remuneration package in exchange for giving up part of monetary salary. The budget announced that the government was considering instituting a limitation to the benefits available for the salary sacrifice scheme but has yet to issue legislation on the issue.
Scheduled for a second reading in the House of Commons on April 11, the bill is expected to receive Royal Assent in July.
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The 2016 Finance Bill is available at http://services.parliament.uk/bills/2015-16/financeno2.html.
The 2016 budget documents are available at https://www.gov.uk/government/publications/budget-2016-documents.
More information on payroll issues in the U.K. can be found in the U.K. country primer.
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