| Many employees will have recalled the final sentence of the Chancellor's Budget speech this time last year and his promise to reduce the basic rate of income tax by 2p.
What he did not mention was the increase in National Insurance for higher paid employees as a result of the above inflation increase in the Upper Earnings Limit (£40,040 for 2008/09 as compared to £34,840 for 2007/08).
Taken together the effect of the changes for the start of the tax year (the reduction in the basic rate to 20% and the abolition of the 10% band take effect in week 1 rather than being backdated) produce some interesting results.
Lower paid employees, those earning up to £15,000 per year, will see an overall reduction in their net pay as more of their salary will be subject to the 10% band. Those earning above £15,000 will see a small increase in net pay, the more significant effect of the reduction in tax as a proportion of their pay offsetting the increase in NICs.
Although the tax rates come into effect in week 1, using the thresholds for 2007/08, the higher rate (40%) threshold for 2008/09 will be announced in the Budget on 12 March. This new threshold is expected to come into effect in week 7 when new tax tables B-D will be available for pay periods on or after 17 May 2008. Based on the Retail Prices Index it is expected that the higher rate threshold will be £36,000.
Of course when tax reduces so does tax relief. So where pension contributions are deducted from net pay to pay over to a personal or group personal pension, the provider can only claim tax relief at 22% to add to the employee’s fund if the contributions for March are received by 5 April (4th in practical terms as 5th is a Saturday).
Payments received on or after 6 April can only attract relief at 20%, even if they were deducted in March. Employers need to consider how they will communicate the impact of all these changes to employees. | Back to top | It's a challenge to keep up with the agency worker debate at the moment. In early February employers received welcome news in the case of James v London Borough of Greenwich.
The Court of Appeal decided that the length of an agency worker’s contract did not lead to an automatic implied contract of employment and therefore employment rights such as protection against unfair dismissal.
The Court did acknowledge that case law in this area was a mess and that the government should act to clarify once and for all their interpretation of the law. Until that happens employers must still judge each case on its own facts, in other words the way that the contract is carried out as well as any paperwork relating to it.
At around the same time another un-related Mrs James got better news – she was to be treated as a worker for National Minimum Wage (NMW) purposes. Backing up the assertion in the Greenwich Council case, the Employment Tribunal said that just because the client has issued a document called a “self-employed courier’s agreement” did not mean that the content of the document, and the way the work had to be carried out, could not lead to the conclusion that Mrs James was a worker.
All of this adds fuel to the political debate that saw a Private Members’ Bill launched by a Labour backbencher last month with the aim of providing better protection and equal treatment for agency workers. Such is the backbench support for the Bill that the Prime Minister has tried to head off a revolt by offering an independent commission to consider the matter.
With this whole issue back at the top of the European Union agenda, with France taking over the presidency in July and Statutory Sick Pay payable to short-term agency workers likely to be introduced in October, this is one area where we need to keep a watching brief.
| Back to top | Employers who have been granted a dispensation on the basis of incorrect information or where the facts have subsequently changed face retrospective revocation HM Revenue & Customs (HMRC) has warned.
While there are undoubtedly sensible reasons for all parties to establish a dispensation, HMRC have been at pains to point out recently that they are only granted on the basis of the facts that are presented to them on the P11DX application form. Where it becomes clear the conditions for the expense or benefit have changed then the dispensation will be revoked.
Until recently HMRC have rarely revoked a dispensation retrospectively where it becomes clear that one is no longer due. However, in a recent statement they said: “Previously our practice was to revoke a dispensation retrospectively, only in exceptional circumstances. We will now consider revoking a dispensation retrospectively where there is any evidence of misrepresentation or negligence by an employer, or other person paying expenses or providing benefits-in-kind.”
A dispensation is a written confirmation from HMRC that an expense or benefit has no tax liability and therefore need not be reported on a P11D or P9D. For example, without a dispensation where a business expense has been incurred and reimbursed and is reported on the P11D as it properly should be, the employee then has to make a corresponding claim via their self assessment return to negate any tax effect of the employer’s entry.
To avoid this unnecessary reporting employers are encouraged to agree dispensations with HMRC for such items of expenditure.
If HMRC’s proposal to abolish the P11D and make all employees, including the lower paid, subject to the payrolling (taxation) of benefits and expenses through the payroll come to fruition, the increased use of dispensations will no doubt be a consideration.
| Back to top | An overhaul of the student taxation regime is long overdue, with many students now having to work throughout the year to fund their studies and so negating the use of the vacation-work exemption.
An overhaul of the student taxation regime is long overdue, with many students now having to work throughout the year to fund their studies and so negating the use of the vacation-work exemption.
In response to the changes to student working patterns HM Revenue & Customs have launched a consultation considering future options for students.
The consultation focuses on the following three options: - abolishing the P38(S), with students treated as ordinary employees and the P45/P46 process applying on engagement;
- introducing a student tax code to allow the personal allowance for the year to be earned before tax starts to be deducted; or
- introducing a code to allow students to be paid gross – similar to the NT code but with the requirement to provide a P45 on leaving.
The consultation, which can be found at www.hmrc.gov.uk/ria/student-tax-condoc.pdf, closes on 16 May 2008.
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