Care is always required when employees are made redundant or payments are made on the termination of employment. Not only are there employment law considerations, there are also important tax implications and this is an area where professional advice is strongly recommended to avoid unnecessary pitfalls. The tax treatment of these payments changed from 6 April 2018 and further changes come into effect in 2019.
Pay In Lieu of Notice
Employers now need to pay Income Tax and Class 1 National Insurance Contributions (NICs) on an element of all termination payments from 6 April 2018, whether or not they are contractual payments. The element that is now chargeable to Income Tax and NICs is the amount of the termination payment that represents payment in lieu of notice (PILON), sometimes referred to as “garden leave”.
The first £30,000 of genuine ex-gratia continues to be exempt from income tax and national insurance. The £30,000 limit includes statutory redundancy payments. Payments in excess of £30,000 are taxed as employment but there is currently no NIC on such payments. It was originally proposed that employers’ NIC would be applied to such payments from 6 April 2018 but the delayed introduction of the National Insurance Contributions Bill means that employer NICs on termination payments above £30,000 will now take effect from 6 April 2019.
Periods of Foreign service
In addition, foreign service relief on termination payments was removed for all UK residents – apart from seafarers – from 6 April 2018. Previously, this provided a further exemption from income tax and NIC depending on the period of time working abroad.
UK residents whose employment ends after 6 April 2018 who receive a payment or benefit in connection with that termination made after 13 September 2017, will not now be eligible for tax relief for any period of foreign service as part of that job.
HMRC are carrying out a review of rent a room relief to discover whether the scheme, introduced back in 1992 provides the right incentives for the rental market. The current scheme exempts from tax, gross rents up to £7,500 where rooms within the taxpayer’s main residence are rented out.
Most accountants that responded to the call for evidence were keen for the relief to continue as it encourages taxpayers to let out spare rooms and provides them with additional income.
Note that where the gross rental income exceeds £7,500, say £12,000, the excess of £4,500 would be taxable. Alternatively the taxpayer may deduct costs of providing the living accommodation such as a proportion of mortgage interest and light and heat. If these allowable expenses amounted to £9,000 then it would be more appropriate to be taxed on the net rental profit of £3,000.
Note also that the current scheme only provides relief where the rooms let are in the taxpayer’s main residence and if the property is jointly owned, the relief would be £3,750 each. Where the lettings are in another property, the new £1,000 property allowance could be set against the gross rental income, however this allowance applies to each taxpayer.
Employers need to report all Benefits in Kind (BiKs), including those under the Optional Remuneration Arrangements (OpRAs) or “salary sacrifice” arrangements, to HMRC on form P11D from 6 April 2018, unless they are registered to voluntarily payroll benefits.
OpRAs are where an employee gives up the right to an amount of earnings in return for a Benefit in Kind (BiK) and includes flexible benefit packages with a cash option, cash allowances and salary sacrifice. All BiKs are now valued at the higher of the cash given up or the value of the BiK. Many previously non-taxable BiKs are now taxable, valued on the cash given up.
Note however that cars with emissions of 75g CO2 / km or less, pensions, pension advice, childcare and Cycle to Work benefits are unaffected.
Subject to a few specific exceptions, arrangements entered into on or before 5 April 2017 kept their previous tax treatment until the earlier of a renewal or variation of the arrangement. Such arrangements moved into the new rules on 6 April 2018.
The implementation date for the EU Data Protection Regulation (GDPR) is 25th May. Despite Brexit, UK businesses will need to comply.
In order to maintain business links with EU countries, the UK will need to create EU equivalent rules and regulations. GDPR is an example of this and must be complied with if businesses want to trade with the EU. The GDPR regulations are more favourable to consumers than businesses.
As personal information becomes more regularly shared and businesses now hold huge volumes of customer data, there is a need for management and control over what businesses can do with that information.
GDPR gives regulators the ability to apply large fines of up to 20m Euro or 4% of global annual turnover – whichever is higher, for non-compliance. As such, businesses need to take these new regulations seriously and will need to implement changes to the way they operate, depending on the type of personal data that they hold. This will include customer records, databases, CRM systems, etc.
In addition, firms will need to ensure that they have appropriate policies and procedures in place with regard to any personal data that they hold or process.
It’s also worth reviewing supplier contracts to ensure that these contracts are GDPR compliant. Finally, your recruitment and HR policies and procedures should be reviewed to ensure that personal data is managed in a way that is compliant with GDPR.
There isn’t a lot of time left before GDPR comes into force. For businesses that haven’t yet prepared for GDPR, the best approach is probably to consider hiring an external consultant to advise the firm on getting up to date as quickly as possible.