Reminder of the five key employment tax changes for 2018
9th August 2018
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 Instead, the PSA is an enduring agreement that remains in place unless varied or withdrawn by the employer or cancelled by HMRC.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 www.gov.uk/government/publications/employment-related-securities-bulletin 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.