There have been several  changes to the tax legislation this year which affect employers and their  employees. Employers need to be aware of these changes,  a majority of which applied from April 2018 and here we provide a reminder of  the five most important in the field of employment tax.

1) Changes to the taxation of termination payments

From 6 April  2018, the Government introduced a series of legislative reforms to termination  payments. All payments in lieu of notice are now  chargeable to income tax and Class 1 National Insurance Contributions (NICs),  whether or not they are contractual payments. Employers are required to  calculate the “post-employment notice pay” (PENP) which represents the amount  of basic pay an employee would have received if they had worked their notice in  full.  The PENP is taxable as earnings and subject to income tax and NICs.  
A summary of other key changes  effective from 6 April 2018 are as follows:

  • Foreign service relief is  abolished for employees who are UK tax residents in the tax year their  employment terminates (except in relation to seafarers)
  • Clarification that payments  for injury to feelings are not  fully exempt from tax and NIC

2) Simplifying PAYE Settlement  Agreements (PSAs)

A PAYE settlement  agreement (PSA) is a voluntary arrangement which allows an employer to settle,  in a single annual payment, the income tax and National Insurance contributions  (NICs) liability of their employees on certain minor and irregular expenses and  benefits.

From 2018/19 onwards, the employer no longer  needs to obtain upfront agreement from HMRC for the renewal of a PSA. Instead,  the PSA is an enduring agreement that remains in place unless varied or  withdrawn by the employer or cancelled by HMRC. Prior to that date, PSAs operated on an annual basis and had to be renewed  each year.

3) SAYE temporary postponement of contributions

The Autumn  Statement 2017 announced an extension to the SAYE savings holiday for employees  from 6 to 12 months without causing the savings contract to be cancelled.

From 1 September  2018:

  • All employees with a savings  contract in place on 1 September 2018 can delay the payment of monthly  contributions on a maximum of 12 occasions over the life span of the savings  contract
  • If the employee has already  delayed the payment of contributions on 6 occasions, they can only delay  payments on a further 6 occasions. They cannot delay payments on a further 12  occasions
  • From 1 September 2018 the  maximum number of months an employee can delay payments over the lifespan of  their SAYE contract is 12 months in total.

See for further information.

4) Auto-enrolment contributions  going up

Automatic enrolment into pension schemes was introduced  in 2012. Employers are required to automatically enrol employees who meet  certain eligibility requirements into an appropriate pension scheme with a  minimum acceptable level of pension contributions.

Enrolment must be automatic and no action must be  required on the part of eligible jobholders, although they may voluntarily  opt-out of the automatic enrolment regime if they wish.

Until 5 April 2018, the total minimum contribution into a  workplace pension was 2% of qualifying earnings (including a minimum 1%  employer contribution). This increased to 5% (including a minimum 2% employer  contribution) from 6 April 2018 and will rise to 8% (including a minimum 3%  employer contribution) from 6 April 2019.

5) State Aid approval for EMI options

On 15 May 2018,  the EU confirmed State aid approval for EMI schemes. As such, any EMI options  granted prior to 11 pm on 6 April 2018 and after 15 May 2018 will, subject to  the usual qualification requirements, qualify to be EMI options.

Previously, on 4  April 2018, HMRC released as part of its wider employment related securities  bulletin, a statement in relation to the validity of EMI schemes following the  expiry of EU State aid approval at 11 pm on 6 April 2018. HMRC at that time,  warned that any intended EMI options granted between 6 April and the date on  which approval was given (15 May 2018) might not qualify for EMI tax treatment,  and advised that it would be better to wait to grant new EMI options until a  new State aid decision was announced. At present, it is still not entirely  clear whether options granted between 11 pm on 6 April and 15 May 2018 will  fall within the scope of the new clearance.