As dawn breaks on a new financial year, George Bull, senior tax partner at RSM looks at some of challenges ahead for CFOs and FDs
From 6 April, employers will have to pay the apprenticeship levy each month if they have an annual pay bill of more than £3million or are connected to other employers (for employment allowance purposes), where the total annual pay bill of the connected employers is more than £3million.
Each stand-alone employer is allowed up to £15,000 per annum to set against the levy. This means that only employers with a total annual pay bill in excess of £3million will bear a cost.
Connected companies or charities, however, will only have one allowance available to the group and will have to decide how it will be allocated.
Based upon earnings attracting employer’s Class1 NICs, the levy will be applied to salary, commission, bonuses, employee pension contributions and non-tax advantaged share awards. It will not apply to earnings of international assignees where they stay within the social security system of their home country.
In England, levy funds will be held in an apprenticeship service (AS) account which will be linked to an employer’s PAYE scheme.
Employers can utilise the funds held in these accounts to pay for apprenticeship training from approved training providers.
All employers will receive a 10% top up from the government to their AS account, so that an employer can recover more from the scheme than the payment they make through the levy.
Employers will access the levy funds in different ways if they are located in Scotland, Wales and Northern Ireland.
Levy funds will expire 24 months after they first enter the AS account unless spent on approved apprenticeship training.
The account will work on a first-in, first-out basis, and the AS account will be set up so that funds that enter at the earliest date will automatically be used first.
Companies may wish to consider their reward strategy in light of this new charge, but care should be taken to ensure that anti-avoidance rules aren’t breached.
Companies may also consider rethinking the recruitment and training policies offered to their trainees.
Where they do not fall within the government’s requirement of a qualifying apprentice working towards an approved apprenticeship stand or within an approved apprenticeship framework, changes could be made to the training programme to maximise use of funds in the AS account.
Gender Pay Gap Reporting
From 6 April, any ‘relevant employer’ with 250 or more employees is required to calculate its gender and bonus pay gap using information from the employer’s usual pay period.
A gender pay gap is the difference between the average earnings of men and women over a period of time, irrespective of role or seniority.
Gender pay gap reporting is intended to capture pay differences on a broader level. Measures designed to ensure equal pay and those aimed at closing the gender pay gap have the overall objective in eliminating sex discrimination in relation to pay.
Gender pay gap reporting legislation requires large employers to publish their overall mean and median gender pay gaps.
Employers in the private sector and charities must calculate their statistics from 5 April 2017 and publish by 4 April 2018.
Employers in the public sector must calculate from 31 March 2017.
The intention behind gender pay gap reporting is to increase transparency of the differences in pay between men and women in the workplace so ultimately, employers can develop plans to close the gender pay gap.
A gender pay gap does not mean an equal pay claim will be proven, however, the existence and size of a gap may encourage an employee or a group of employees to bring an equal pay claim.
An employer can have an effective equal pay policy yet still have a gender pay gap if, for example, the majority of women are employed in lower-paid jobs.
Therefore, the primary purpose of the equal pay legislation is not simply to prevent a gender pay gap but to ensure that men and women are not paid differently for doing the same or similar work unless the difference is justified.
Publishing information that highlights inequalities in pay could have significant implications including damage to reputation, negative press or costly equal pay claims.
By being proactive and carrying out an equal pay audit, companies should be able to identify any gender pay gap issues and take steps to address them.
Optional Remuneration Arrangements – better known as salary sacrifice schemes – changed dramatically from April 2017.
All employers who provide benefits to employees in exchange for salary sacrifice or salary exchange are affected.
This includes any flexible benefits schemes where there is an element of salary sacrifice.
In addition, choices between a benefit or cash will also be affected. A common example of this is where an employee can choose between a company car or a cash allowance.
However, the changes will not affect where a salary sacrifice is in place for the provision of pensions, cycle to work schemes, ultra-low emission vehicles (vehicles under 75g CO2/km) and the provision of childcare under certain circumstances.
Additionally, arrangements existing before 6 April 2017 are protected until the sooner of the end of the agreement and 5 April 2018. For certain types of arrangement this date is 5 April 2021.
The new rules represent some of the most fundamental changes to the taxation of benefits-in-kind in recent times. They will likely impact half a million company car drivers along with millions of employees.
Employers can be forgiven for thinking the introduction of the rules has been rather rushed, given the guidance and the legislation, as such major changes were issued only 16 days before they were due to come into effect.
Employers would do well to keep a printed copy of this guidance should they be required to prove they had taken reasonable care in their decision-making process.
The rate of corporation tax reduced to 19% from 1 April and will further reduce by 2% to 17% from 1 April 2020.
One of the more significant changes for companies is the restriction on corporation tax interest deduction from 1 April.
There is a £2million de minimis amount for groups. The excess of the net interest expense over this limit is restricted to 30% of profits before interest, tax, depreciation and amortisation (EBITDA) that is taxable in the UK. There is an optional group ratio rule if this is beneficial.
There are also changes to restrict the use of losses carried forward by companies to 50% of their profits arising on or after 1 April 2017. This restriction applies where a company or group’s profits exceed £5miliion.
Scottish Income Tax divergence
From 6 April the full impact of devolved income tax in Scotland was felt for the first time. The higher rate threshold is now frozen at £43,000 in Scotland while increasing to £45,000 in the rest of the UK.
Scottish taxpayers will be faced with higher tax bills where they have non-savings and non-dividend income (eg earnings, pension and rental income) in that range.
Those who pay their tax through PAYE should already have a tax code prefixed with ‘S’ to identify them as Scottish taxpayers.
For employers, all computerised payroll systems should now be able to cope with these and calculate the tax correctly. For those in self-assessment, tax returns now come with a tick-box to notify Scottish taxpayer status.
For the vast majority of Scottish taxpayers, their status will be obvious. For others it may not be so obvious.
Students, offshore workers, travelling salesmen and long-distance lorry drivers are all examples of situations where taxpayer status may not be obvious and a more detailed review of circumstances will be required.
George Bull is a senior tax partner at RSM, the top ten accounting firm.