Forthcoming employment tax legislation
By Justine Riccomini, Head of Taxation (Scottish Taxes, Employment and ICAS Tax Community)
22 August 2019
Draft employment tax legislation was released on 11 July 2019 for technical consultation. Justine Riccomini takes a look at what is happening.
The Government has said that it is committed, where possible, to publishing most tax legislation in draft for technical consultation before the relevant Finance Bill is laid before Parliament. The aim is to consult on the draft clauses to make sure that the legislation works as intended. The policy position has been settled and the final contents of ‘Finance Bill 2019-20’ will be subject to confirmation at Budget 2019.
The following measures in relation to employment tax matters have been issued:
- Rules for off-payroll working from April 2020
The proposed amendments to the IR35 rules in the private sector at Part 2 of ITEPA 2003 have been set out, affecting chapters 8 and 10 of the Act. This proposed legislation aims to align the private sector treatment with that currently operating in the public sector since April 2017, but with some differences.
The main changes are:
- Qualifying private sector businesses (the engager, or end user) will need to decide on the status of the worker providing services through an intermediary and communicate that status, together with the reasons for that decision, to the worker and the fee-payer.
- ‘Qualifying businesses’ are those defined as ‘medium’ or ‘large’ by Companies Act 2006.
- Companies falling under the definition of ‘small’ per Companies Act 2006 do not need to apply the rules unless they are ‘connected’ to or in a Joint Venture with a medium or large business. The contractors engaged by small businesses will be expected to decide whether their contract falls within IR35, as before.
- Medium and large third sector or not for profit businesses will qualify if they exceed the turnover test in Companies Act 2006 alone.
- Managed Service Companies legislation currently set out at Chapter 9 of the Act is to be amended to bring MSCs into the scope of this revision as if they were off-payroll companies.
- In the event of a dispute, the engager has 45 days to respond to a query about the status determination and provide written conclusions with reasons. However, beyond this, there is no further dispute resolution process.
- Under the new transfer of liabilities provisions, if one person in the supply chain fails to fulfil their obligations under the legislation, the liability transfers up to the next person in the chain, finally resting with Agency 1.
More detail on the proposed off-payroll rules is set out in a separate article.
- Taxable benefits and rules for measuring carbon dioxide emissions
Further to the announcement made at Budget 2017, HMRC is proposing to change the way in which company cars first registered from 6 April 2020 are taxed by using the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) method of measuring CO2 emissions. Currently, emissions are tested using the New European Driving Cycle procedure (NEDC).
According to HMRC, “NEDC emissions values will still apply to cars first registered between 1 October 1999 and 5 April 2020 inclusive, and the appropriate percentage for cars tested under the existing method for the tax years 2021 to 2022 and 2022 to 2023 will be maintained at the 2020 to 2021 rates”.
The amendments will be made to Chapter 6 of Part 3 ITEPA 2003, sections 136, 137 and 139 of ITEPA.
- Income Tax relief and the Enterprise Investment Scheme approved knowledge-intensive fund
The primary purpose of the EIS is to offer tax relief to individual investors who subscribe for new shares in higher-risk companies. Budget 2017 announced the intention to introduce a “knowledge-intensive” fund structure to re-focus the venture capital spotlight on high-risk businesses. After a consultation in 2018, HMRC received feedback from stakeholders to say that additional tax reliefs were not required, but that a more flexible approach would be welcomed.
The purpose of this proposed change is, therefore, to sharpen the focus of investments on “knowledge-intensive” companies and enhance the flexibility of the scheme. The existing rules set out at Part 5 of the Income Tax Act 2007 (ITA 2007) for approved Enterprise Investment Scheme (EIS) are to be amended.
- Expenses paid to voluntary office-holders
Draft legislation is to be introduced via FB2019 to insert a new section into Chapter 8 of Part 4 ITEPA 2003. This places the previous ESC on a statutory footing to prevent liability to income tax and NICs arising in respect of a payment or reimbursement of reasonable private expenses to a voluntary (unpaid) office-holder. (The current guidance (i.e. the ESC) is at EIM 71100.)
From 6 April 2020, section 299B ITEPA will exempt from tax the payment of reasonable private expenses incurred in carrying out the duties of an office. [Section 299A ITEPA 2003 is an existing provision relating to voluntary office-holders.]
Note too, whilst it is not a legislative matter, that there has been a withdrawal of the ‘special arrangements’ relating to ‘part-time office-holders’ - all reimbursed amounts paid for travel to and from a paid appointment need to be dealt with through payroll.
Feedback regarding the proposed legislation is sought by HMRC’s various tax policy teams. If a member wishes to comment on any of the above items, please let the ICAS tax team know by mid-August 2019.