National Insurance Contributions (NI)
No changes to the rates of income based NI contributions were announced in the Budget. Class 2 NI will increase from £2.75 per week to £2.80.
The primary and secondary thresholds (at which employees and employers, respectively, start to pay NI) have been increased to £155 and £156 per week, respectively.
The upper earnings (or profits for the self employed) limit is £42,385, aligned with the point at which 40% tax becomes payable.
Details of the rates of NI can be found here.
Employer’s Employment Allowance
The employment allowance remains at £2,000 per annum.
Comment: For those of you paying yourselves the National Insurance limit, this means that you should increase your pay to £8,060 per annum (£671.66 per month) from April.
However, if you have no other income (apart from dividends), you may want to think about paying yourself £10,600 per annum to use your tax free allowance, since, although you will pay NI at 12%, the employer’s NI will be offset by the employment allowance, and you will save corporation tax at 20%, saving you £209 per annum .
Abolition of employers National Insurance contributions for the under 21s
A reminder that, from 6 April 2015 every employer with employees under the age of 21 will no longer be required to pay Class 1 secondary National Insurance contributions (NICs) on their earnings up to the upper earning limit (UEL), for those employees.
Abolition of employers National Insurance contributions for apprentices aged under 25
From 6 April 2016, every employer with apprentices under the age of 25 will no longer be required to pay Class 1 secondary National Insurance contributions (NICs) on their earnings up to the upper earning limit (UEL), for those employees.
Tax exemption for employer expenditure on recommended medical treatment
When an employer pays for employee medical treatment, the payment is usually chargeable to tax and NI.
It was announced in Budget 2014 that from Autumn 2014, where an employer meets the cost of ‘recommended’ medical treatment for an employee, that payment will be exempt from income tax and national insurance, up to an annual cap of £500 per employee.
The new regulations actually came into force with effect from 1 January 2015. The conditions that must be satisfied for exemption (to quote from the HMRC manuals) are:
- before the recommendation for medical treatment has been made the employee must have been either:
- assessed as unfit for work due to injury or ill health for at least 28 consecutive days by a health care professional (i.e. the health care professional expects that, without medical treatment, the employee will be unfit for work for at least four weeks); or
- absent from work due to injury or ill health for at least 28 consecutive days.
- the recommendation is made to the employee by a health care professional as part of occupational health services provided to the employee:
- under section 2 of the Employment and Training Act 1973; or
- by, or in accordance with, arrangements made by the employer;
- the recommendation is provided for the purposes of assisting the employee to return to work;
- the recommendation :
- is in writing,
- is provided to the employer and employee, and
- specifies the medical treatment that is recommended.
The exemption applies to medical treatment up to a maximum cost of £500 in the tax year per employee. Any costs in excess of this amount are subject to tax in the normal way for medical treatment.
An assessment that an employee is unfit for work includes an assessment that they may be fit for work subject to the employer making arrangements to enable them to return, providing that the employee does not return to work before a recommendation for medical treatment is made.
The exemption does not apply if the medical treatment is provided under salary sacrifice arrangements.
Trivial Benefits in Kind
As announced at Autumn Statement 2014, from April 2015 there will be a statutory exemption from tax and national insurance for qualifying trivial benefits in kind (BIKs) costing £50 or less. There will be an annual cap of £300 for office holders of close companies (which would include the directors of most owner managed businesses), and employees who are family members of those office holders. Those affected by this cap will be able to receive a maximum of £300 worth of trivial benefits in kind each year exempt from tax.
Other changes to Benefits in Kind
The small earnings threshold of £8,500 that exists for benefits in kind will be abolished for employees from 6 April 2016. This means that benefits in kind must be reported, and tax and employer’s national insurance paid, for all benefits provided to employees, not just those earning over £8,500 per annum.
Note: The exemption never applied for directors, so those paying themselves the lower NI limit, which is less than £8,500, already have to report and pay tax on any benefits
There is also an intention to allow voluntary payrolling of benefits in kind from 6 April 2016. This would mean that the tax on benefits such as cars, private fuel, medical insurance and gym subscriptions could be collected via the payroll rather than via P11D benefit forms and tax code changes.
Finally, a new exemption for deductible expenses and reimbursements will apply from 6 April 2016. This will apply where employees would have been eligible for tax relief if they hadincurred and met the cost of the expenses or benefits themselves, and will remove the need either apply for a ‘dispensation’ not to include the expenses on a benefit in kind form P11D, or to report such expenses on form P11D.
Employment intermediaries and expenses
The government will consult on detailed proposals to restrict tax relief for travel and subsistence, for workers engaged through an employment intermediary, such as an umbrella company or a personal service company, and under the supervision, direction and control of the end-user.