Government Business

This article is dominated by the Chancellor, Alistair Darlings Pre-Budget Report (PBR). Once you drill down into the detail of the 211 page report there is quite a lot to take note of for payroll and pensions’ departments within local and central government. In this issue I bring to you important elements of the PBR announcement and a brief update on salary sacrifice related issues such as Childcare Vouchers (CCVs) and Cycle to Work schemes.

TAX rates and allowances
The Chancellor announced a freeze on income tax for those that pay 40 per cent tax, meaning a freeze on higher rate threshold from April 2012 For the tax year 2010/11 all tax allowances and thresholds will be the same as for the current year.

For the tax year 2012/13, the higher rate threshold (the point at which someone starts to pay higher rate tax) will be frozen at the 2011/12 amount. The personal allowance will be increased and the basic rate limit will be reduced by the same amount. Visit: www.hmrc.gov.uk/pbr2009/pn02.htm

All income tax rates and allowances can be viewed at: www.hmrc.gov.uk/pbr2009/pn02.pdf. You will see that the personal allowances for those under 65 years remains the same for 2010/11 being £6,475.

National Insurance
If you are an employer, employee or self-employed you need to read this information. National Insurance rates that will apply from April 2010:

• LEL (linked to state pension) will increase by £2 to make the April 2010 rate £97 per week.
• Class 2 rate for volunteers and development workers will increase by 10p, making the weekly rate £4.85 from April 2010.
• All other NICs rates and thresholds are unchanged for 2010/11.

The 2008 Pre-Budget Report announced that from 2011/12 the main rate of Class 1 and Class 4 NICs will be increased by 0.5 per cent to 11.5 per cent and 8.5 per cent respectively. And the Class 1 employer rate will be increased by 0.5 per cent to 13.3 per cent. The increased rate will apply to Class 1A and 1B contributions. The additional rate of Class 1 and 4 NICs will also be increased by 0.5 per cent to 1.5 per cent.

Pensions
Restricting Tax Relief for High-Income Individuals (Anti-Forestalling).

This will not affect your payroll processes and this will primarily be administered via Self Assessment. However, pensions professionals may find this information useful.

Individuals with incomes of £130,000 or over who – on or after 9 December 2009 – change their normal pattern of regular pension contributions or the normal way in which their pension benefits are accrued, is likely to be affected.

Those whose total pension contributions/benefits accrued (‘pension savings’) exceed the special annual allowance of £20,000 a year (or in some circumstances £30,000) may also be affected.

It may also affect scheme administrators of registered pension schemes and advisers with clients who have changes to pension savings that are affected by this measure.

Special Charges
Pensions: Changes to Tax Rates for Special Charges and the Special Annual Allowance Charge wef 2010.

Who is likely to be affected?

• Scheme administrators of registered pension schemes who are liable to a charge on the payment of short service refund lump sums.
• Beneficiaries of Employer-Financed Retirement Benefits Schemes (EFRBS) where the scheme makes a payment other than to an individual.
• Pension scheme members who are liable to the special annual allowance charge.

This measure increases the rates for the tax charge on short service lump sum refunds and EFRBS payments, other than to individuals, and sets new rates for the special annual allowance charge with effect from 6 April 2010.

The measure will have effect for short service lump sum refunds and EFRBS payments made on or after 6 April 2010, and to special annual allowance charges in respect of excess pension savings made in 2010/11.

Salary Sacrifice
Salary Sacrifice: Restricting the Tax Exemption for Workplace Canteens wef 2011

Who is likely to be affected? Employers and employees who have structured contractual remuneration arrangements, involving salary sacrifice or flexible benefits, that are intended to allow employees to obtain meals at work partly or wholly free of liability to tax and National Insurance Contributions (NICs). Operative date effect on and after 6 April 2011.

Company Car Tax
Changes to Company Car Tax wef 2012.

Legislation will be introduced in the Finance Bill 2010 to set the company car tax charge for 2012/13. Operative date on and after 6 April 2012.

The current graduated table of company car tax bands will be extended down to a new 10 per cent band, and all CO2 emissions thresholds moved down by 5g/km on 6 April 2012 so that the 10 per cent band will apply to company cars with CO2 emissions up to 99g/km. Qualifying Low Emissions Cars (QUALECs) will therefore no longer exist as a separate category.

VAT Flat Rate Scheme
Changes to the Flat Rate Percentages wef 1 January 2010.

The VAT rate is increasing from 15 per cent to 17.5 per cent from 1 January 2009. This is no surprise to business as we had already been warned of the increase. HMRC have already written to all VAT registered businesses explaining how and when to apply the changes and information was included in News On Line, see issue 30 November 2009.

The flat rate percentages were re-calculated in December 2008 to reflect the temporary reduction in the standard rate of VAT. This measure will ensure that they are based on the 17.5 per cent rate of VAT effective from 1 January 2010. It also makes technical adjustments to the rates to ensure that they reflect the latest data about business VAT liabilities in each sector. Operative date on and after 1 January 2010.

Other changes
PAYE scheme pooling: HMRC is considering the policy and practicalities of allowing large connected employers to combine or pool their PAYE references.

Basic State Pension: To support pensioners more broadly, the level of the basic State Pension will increase in line with the government’s existing commitment by 2.5 per cent in April 2010, meaning a full basic State Pension will increase by £2.40 to £97.65 a week. Further information can be viewed at section 5.43 of the Pre-Budget Report.

Public sector pay: The government has already proposed awards in the range of up to one per cent in 2010-11 for key public service workforces not in multi-year deals. Going forward, the 2009 Pre-Budget Report announces that the government will seek a one per cent cap on basic pay uplifts across the public sector for 2011-12 and 2012-13, generating savings of £3.4 billion a year by 2012-13. Further information can be viewed at section 6.49 of the report.

The Chancellor also announced reforms to public service pensions to save £1 billion a year from 2012-13 onwards. He stated that pensions such as Local Government and Teachers Pensions would be capped from 2012; however no further detail is provided in the PBR.

Salary sacrifice
I had hoped to bring you further information on salary sacrifice in relation to the Government announcement to cease tax breaks on Childcare Vouchers (CCVs) and Cycle to Work Schemes from April 2011. However, the PBR did not prove fruitful. The IPP Policy team are part of an ongoing consultation with HMRC and other stakeholders and so we will be reporting on further progress within our weekly e-news letter News on Line. So where are we in relation to CCVs?

The latest news reported is that the Government has bowed to pressure from labour backbenchers and will rethink the decision on scrapping childcare vouchers. It is said that the PM has promised that tax relief will not be removed for basic rate taxpayers. However, from 2011 any higher rate taxpayers joining the scheme will receive only basic rate tax relief; so still an administrative burden for employers!

We are also hoping that keeping the tax relief on CCVs means that the IPP can continue to lobby for the extension of the open to all rule on CCVs and extend that to Cycle to Work Schemes (CTW) e.g. allow certain sectors of worker to be excluded without invalidating a CTW Scheme.

If you would like to read the IPP PBR statement in more detail please visit the IPP web pages: www.payrollprofession.org

Elaine Gibson MSc FIPPDip is senior policy officer and manager of post graduate qualifications for the Institute of Payroll Professionals (IPP)