2008 Budget

Car taxes overshadow employment taxes

The Chancellor presented his 2008 Budget to Parliament on Wednesday, 12 March 2008.  It included very little of direct relevance to Payroll – all of the significant changes to income tax rates and NICs thresholds were announced in the 2007 Budget, a year in advance, or in the Pre-Budget Report in November 2007.

For completeness, the following coverage of the Budget includes all of the earlier announcements and analyses their impact on employers and, in particular, on employees.  Tables showing all of the rates and thresholds for the 2008/09 tax year are provided in this week’s Frequently Asked Questions section.

Income tax allowances

With two exceptions, all personal and other tax allowances increase from 6 April 2008 by 3.95%, the retail price inflation rate at September 2007.  The personal allowance for 2008/09 is £5,435, giving an emergency tax code of 543L. 

The exceptions are the personal age allowances for those age 65 and above, where the increase is about 19%, specifically £1,180 above inflation.  By 2011, the Government’s intention is for the age 75 allowance to be £10,000.

Income tax rates and thresholds

The following income tax rate changes are effective from 6 April 2008:

• the annual tax threshold, the earnings level above which tax is due by a taxpayer with tax code 543L, is £5,435, the equivalent of approximately £105 per week
• the 10% starting rate is removed, insofar as it applies to employment income
• the 22% basic rate of tax is reduced to 20% and it applies to the first £36,000 of taxable earnings
• the 40% higher rate of tax applies to taxable earnings that exceed £36,000.

The £36,000 upper basic rate threshold will come into use from the first payday after 17 May 2008, i.e. tax week 7 for weekly-paid employees, and tax month 2 for monthly-paid employees.  Except for employees with non-cumulative tax codes, the threshold applies retrospectively from 6 April 2008.

The effects of these changes on employees is that

• those earning up to around £15,000 will pay more tax, with some or all of their taxable earnings being taxed at 20% instead of 10%
• those earning over £15,000 will pay less tax, with some or all of their tax able earnings being taxed at 20% instead of 22%.

The overall impact on employees’ take-home pay of both the tax and the NICs changes for 2008/09 is illustrated below in the Table accompanying the following section.

NICs rates and thresholds

The rates at which Class 1 NICs are calculated are unchanged for 2008/09.

The NICs lower earnings limit (LEL) and earnings threshold (ET) increase in line with retail price inflation, to £90 and £105 per week (£390 and £453 per month) respectively.  However, the upper earnings limit (UEL) increases by £75 per week above indexation, from £670 to £770 per week (£34,840 to £40,040 per year), as the first stage towards aligning it, from April 2009, with the level at which the higher rate of tax becomes payable.
From April 2009, the aligned upper tax and NICs threshold will be increased by £800 a year above indexation.

Also from April 2009, a new NICs threshold, the Upper Accrual Point, will be introduced and will replace the UEL as the upper threshold for contracted-out earnings.  It will be fixed at £40,040, the same as the annual UEL for 2008/09 but it will not change each year.

The effect of the 15% increase in the UEL for 2008/09 is that employees earning above £35,000 will pay more NICs, with their earnings up to £40,040 being subject to NICs at 11% instead of 1%.  There is a small consistent saving in employer NICs of about £27 for the year throughout the range of salaries
The overall impact on employees’ net pay of both the income tax and NICs changes for 2008/09 is illustrated in the following Table.  It assumes an employee with

• tax code 522L for 2007/08 and 543L for 2008/09,
• NICs Table Letter A, and
• the same salary in both tax years.

The two “Employee Overall %” columns indicate, as a result of the combined effect of the increase or decrease in the tax and NICs due, the percentage by which an employee’s

1. total amount of tax and NICs increases or decreases
2. net pay increases or decreases.

For example, an employee with a salary of £8,000 will, in 2008/09, pay 49.8% more in tax but 7.6% less in NICs than in 2007/08.  The overall effect is that the combined amount of tax and NICs will increase by 22.7% and the employee’s net pay will reduce by 2%.

Enterprise Management Incentive Scheme

Enterprise Management Incentives (EMIs) are tax and NICs advantaged share options available to small companies with gross assets not exceeding £30 million, to help them recruit and retain employees.  In addition to this gross assets test, EMI is limited to companies or groups which are independent and are not in one of a list of excluded trading activities defined in legislation.  There is also a working time requirement and employees cannot hold qualifying EMI options, taking into account Company Share Option Plan options also granted to them, with a total market value of more than £100,000 at date of grant.

The Budget makes the three following changes to these provisions, the second and third of which are being introduced to ensure that EMI continues to meet the EU State aid guidelines:

1. The individual employee limit on grants of EMI qualifying options is increased from £100,000 to £120,000. This change will apply to options granted on or after 6 April 2008.
2. A new test is added that limits EMI to companies with fewer than 250 full-time employees. If a company has part-time employees, the full-time equivalent number of these can be calculated by adding to the number of full-time employees a just and reasonable fraction for each part time employee.
3. This list of excluded trades is extended to include shipbuilding, coal and steel production.

The qualifying company changes will have effect in respect of EMI share options to be granted on or after the date Finance Bill 2008 receives Royal Assent.  The changes will not have effect in respect of qualifying EMI share options already granted under the existing rules.

Cars and vans

Company car benefit charge
The car benefit charge for a particular company car is calculated by applying a percentage, in most cases between 15% and 35%, to the car’s list price.  The percentage is related to the car’s CO2 emission rating.  For the 2007/08 tax year, the lowest 15% charge applies to cars with an emission rating of 140 g/km.  (Emission ratings of 141 to 144 g/km are rounded down to 140.)  The highest 35% charge applies to cars with emission ratings of 240 g/km or above.

From 6 April 2008, the range of emission ratings reduces to between 135 and 235 g/km.  The range will reduce further to between 130 and 230 g/km from 2010.

Each time the range of ratings reduces by 5 g/km, the reportable value of a particular car for tax purposes increases by 1% from its value for the previous tax year.  For example, the cash equivalent of a petrol car that is available for the whole of 2007/08 and that has a list price of £15,000 and an emission rating of 140 g/km is £2,250, i.e. 15% of £15,000.  The cash equivalent for the same car for the whole of 2008/09 will be £2,400, i.e. 16% of £15,000.

Company car fuel benefit charge
A car fuel benefit charge applies to a company car when fuel is provided for the employee’s personal use.  The charge is calculated by applying the same percentage that is used to calculate the car benefit charge to a fixed statutory value, known as a “multiplier”, for the particular tax year.  The multiplier for 2007/08 is £14,400.

The multiplier for the 2008/09 tax year increases to £16,900 and, from April 2009, it will be increased each year in line with price inflation.

The effect of the increase for 2008/09 will be to increase the car fuel benefit charge for a particular car by 17.36% from its level for 2007/08.  For example, using the same car that is used in the car benefit charge example above, the cash equivalent of the fuel benefit for 2007/08 would be £2,160 (i.e. 15% of £14,400).  For the same car, the cash equivalent for 2008/09 will increase to £2,704 (i.e. 16% of £16,900).  However, this is a 25% increase, caused by the “stealth” effect of applying the increases in the car benefit charge and the fuel benefit charge to each other.

Van car benefit charge
Section 239 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) provides that, where a benefit charge applies to the provision of a company car or van, any payments made by the employee or reimbursed to the employee in connection with the vehicle do not give rise to any tax liability.  Section 239 also makes it clear that those exemptions from any tax liability do not apply to the provision of car fuel for private use – there is a separate car fuel benefit charge.

However, despite the introduction from April 2008 of a van fuel benefit charge, Section 239 fails to indicate that the exemptions from any tax liability do not also apply to the provision of van fuel for private use.  This omission is to be corrected in the Finance Bill 2008.

A similar error also exists in section 269 or ITEPA, where the use of a non-cash voucher or credit token to obtain goods or services in connection with a car or van for which there is a car benefit charge is excluded from a tax charge.  However, the section goes on to remove the provision of fuel for private use from that exclusion in the case of a car but not of a van.  This omission is also be corrected in the Finance Bill 2008.

VAT fuel scale charges
VAT fuel scale charges to taxing private use of road fuel are adjusted to reflect changes in fuel prices and the table of CO2 bands is amended to maintain alignment with those used for direct tax purposes.  Businesses which recover input tax on fuel used for private motoring will use the new scale charges from the start of their next prescribed accounting period beginning on or after 1 May 2008.

Vehicle Excise Duty
Between 2009 and 2011, Vehicle Excise Duty (VED) will be restructured to promote the use of less polluting cars.  The changes are

• introducing six new VED bands from 2009/10 for vehicles registered on or after 1 March 2001 – including a new top band (band M) for cars with a CO2 emission rating of more than 255g/km
• reducing the standard rate, in 2009/10, for all new and existing cars with an emission rating of 150g/km or less, and an increase in the rate for high emission cars to £425
• from 2010/11, extending the zero rate of VED during first year of ownership to all new cars with an emission rating of 130g/km or less
• in 2010/11, holding the first-year rate for all new cars with emission ratings between 131 and 160g/km equal to the standard rate
• in 2010/11, introducing a first-year rate of £950 for cars with an emission rating of 255g/km or more
• providing discounts of £15 or £20 for alternatively fuelled cars in 2009/10, £10 in 2010/11, and aligning the alternative fuel and standard rates of VED in 2011.

A VED incentive will be introduced from 1 January 2009 to encourage early take-up of Euro V technology diesel vans ahead of mandatory introduction in 2011.  The incentive will remain for the lifetime of the vans.

Capital allowances
From April 2009, the existing capital allowance treatment for business cars will be replaced with an approach that is based on CO2 emission bands.  Expenditure on cars with CO2 emissions above 160g/km will attract 10% Writing Down Allowance (WDA) and expenditure on cars with CO2 emissions of 160g/km or below will attract 20% WDA.

Mileage allowance payments
In May 2007, HMRC consulted on proposals to change the rates and thresholds for mileage allowance payments for business travel in employees’ own vehicles.  There has been no feedback from that consultation and, in the 2008 Budget documents, it is confirmed that no changes are being made to the rates and thresholds for mileage allowance payments (MAPs) for 2008/09.  It was, however, announced that consideration is being given to align the tax and NICs treatment of MAPs when a decision is made on taxing benefits through the payroll from 2011.

Childcare vouchers

No reference is made to the taxation of childcare in any of the 2008 Budget documents, so no change is being made for 2008/09 to the £55 per week exemption for the provision of childcare vouchers or employer-contracted childcare.

Tax avoidance schemes

Scheme reference numbers
A promoter of a tax avoidance scheme is required to disclose details of the scheme to HMRC.  HMRC then issues a scheme reference number (SRN) and the promoter is then required to pass on that SRN to clients who use the scheme.  The client, in turn, must notify HMRC that the scheme is being used within defined time limits.

Two problems have arisen with these rules in practice.  First, a promoter of a scheme does not have to disclose it to HMRC if there is more than one promoter and another promoter has disclosed it.  It is possible, therefore, for a “co-promoter” not to be issued with an SRN, with the result that that promoter’s clients do not inform HMRC that they are using the scheme.  Second, a promoter is only required to give a client the SRN when the client implements the scheme.  In practice, promoters often pass the SRN on earlier, as soon as they make the scheme available to clients, also creating the situation where the client fails to inform HMRC.

To ensure that all clients using a disclosed scheme inform HMRC, the provisions of the Finance Act 2004 will be amended so that either

• a promoter has to notify HMRC of any co-promoters at the time of disclosure and provide the co-promoters with a copy of the disclosure, following which HMRC will also notify the SRN to the co-promoters, or
• a promoter will notify the SRN to any other co-promoters, along with a copy of the disclosure.

In addition, HMRC will introduce a form for promoters to use when passing the SRN to clients which will provide instructions on what they must do with it.  The legislation will also be changed so that

• a client receiving an SRN will be required to pass it on to any other person who is party to the same scheme and is likely to obtain a tax advantage from using it, and
• HMRC may withdraw an SRN, thereby removing the obligation for the SRN to be passed on to other parties or reported to HMRC.

Counteractive measures
A number of measures are to be included in the Finance Bill 2008 to counteract non-payroll related avoidance schemes involving “disguised interest” arrangements, “sideways loss relief” and the transfer of the right to receive rentals under a lease of plant or machinery. 

Retrospective measures will be included in the Finance Bill 2008 to clarify that a provision Double Taxation Treaties do not exempt UK residents from UK tax on any profits of a foreign partnership to which they are entitled, and that a provision of Treaties known as the “Business Profits Article” cannot be read as preventing income of a UK resident being chargeable to UK tax.

New provisions are also to be introduced to repeal or simplify former tax avoidance measures that were flawed, excessively complex or that are now unnecessary.

Income shifting

Proposals to restrict the transfer of income to someone else who pays tax at a lower rate will not be introduced from April 2008.  There will be further consultation with a view to introducing legislation from April 2009.

HMRC’s review of powers, deterrents and safeguards

A new penalty regime for direct taxes, including income tax and NICs, was introduced by the Finance Act 2007.  The provisions, which relate to inaccurate tax returns and failure to notify HMRC of an under-assessment of tax, apply for return periods beginning on or after 1 April 2008 where the return is due to be filed on or after 1 April 2009.  The penalty is determined by the amount of tax understated, the nature of the behaviour giving rise to the understatement and the extent of disclosure by the taxpayer.

Further measures are to be included in Finance Bill 2008 to

• extend the same penalty regime to all other taxes administered by HMRC, including the recovery of student loans by employers
• introduce new powers to inspect records, penalties for non-compliance and a criminal offence of concealing or destroying records requested by a tribunal
• facilitate the payment of taxes and duties by credit card, offset tax repayments against tax debts, and align powers to enforce civil debts. 

Tax Relief on Business Related Expenses

Whether incurred exclusively and necessarily in the performance of duties

Section 336 of the Income Tax (Earnings and Pensions) Act 2003 (formerly section 198 of the Income and Corporation Taxes Act 1988) allows employees to claim a “deduction from earnings” (i.e. claim tax relief) on expenses that they have incurred “wholly, exclusively and necessarily in the performance of the duties of the employment”.

The use of this provision was considered in February by the Special Commissioner in the case Emms v Revenue & Customs.  That decision was reviewed in our last newsletter.  The same issues were explored in a new case, Perrin v Revenue & Customs, the decision on which was issued on 4 March 2008.

Mr. Perrin is a Chartered Certified Accountant. Before he qualified, while working for a firm of Chartered Accountants, he paid personally for the course fees and reference materials that enabled him to qualify.  He claimed tax relief on those payments on his self-assessment returns for 2004/05 and 2005/06 but HMRC disallowed the claims on the basis that his expenditure was not incurred exclusively and necessarily in the performance of his employment duties.

The Commissioner upheld HMRC’s decision, concentrating in particular on the requirement that, for a deduction to be permitted, the payments had to be have been incurred “in the performance of the duties”.  Mr. Perrin appeared to have a strong argument.  The employer paid him while he was attending training courses (other than courses held at weekends) and viewed the training as part of the duties of the job.  He could have been summarily dismissed for failing to attend a course for which he had been granted study leave.

The general principle is that expenditure incurred “in the performance of duties” is deductible, whereas expenditure that puts a taxpayer in a better position to perform the duties is not deductible.  The Special Commissioner found that attendance at the training courses was not one of the duties of the employment as

• Mr. Perrin was not paid for training that occurred at weekends,
• he was paid for the work performed in the firm’s business, not for attending the courses
• the training was described in the staff handbook as “study leave”, i.e. time away from the duties of the employment, and
• study leave to qualify was granted at the discretion of the firm.

Even if the Special Commissioner had found that the expenditure had been incurred in the performance of this duties, he commented that he would have found it difficult to have concluded that it was “exclusively” so incurred.  The expenditure must have been incurred in part in order to obtain his qualification and was not, therefore, exclusively incurred in performance of the duties.

Further information:
Perrin v Revenue & Customs  http://www.bailii.org/uk/cases/UKSC/2008/SPC00671.html

Payments to the Accounts Office

Penalty regime for unpaid Class 1 NICs and Student loan deductions

Last week’s newsletter described the changes made to the Social Security (Contributions) Regulations 2001 to allow HMRC to assess an employer for amounts that, based on the employer’s pattern of monthly or quarterly payments to the Accounts Office, appear not to have been paid in subsequent months or quarters.  The new provisions allow HMRC to estimate a single amount that combines the different elements that could be included in the payment, namely, PAYE tax, Class 1 NICs, tax on account deducted under the Construction Industry Scheme and student loan deductions.
Corresponding changes have now been made to the equivalent provision in the Income Tax (Construction Industry Scheme) Regulations 2005.  They apply to contractors in the Construction Industry Scheme in respect of deductions of tax on account made from subcontractors and, if the contractor is also an employer, to any tax, NICs and student loan deductions that are due for payment to the Accounts Office.

The necessary amendments are also being made to the equivalent provisions of the Income Tax (Pay As You Earn) Regulations 2003 and to the Education (Student Loans)(Repayment) Regulations 2000 and the corresponding Northern Ireland Regulations.

Further information:
The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2008  http://www.hmrc.gov.uk/si/2008-0740.pdf
Explanatory Memorandum to The Income Tax (Construction Industry Scheme) (Amendment) Regulations 2008  http://www.hmrc.gov.uk/si/2008-0740-em.pdf

2007/08 Year End Returns

Online filing restrictions over the tax year end

HMRC has provided further, more detailed information about 2007/08 year-end filing issues and, as a result, an expanded version of last week’s summary is provided here.
Year-end Filing: HMRC’s own online year-end filing facilities are already available for use for 2007/08 Returns.  However, they will not be available between 6 am on 4 April and 6 am 6 April, during which period HMRC will be updating its PAYE Service for changes to legislation.

However, the period of restriction is expected to be only between 12 noon and 8 pm on 5 April for employers using third-party software to file their returns.  It will still be possible to send Returns during that period but there will be no response until the end of the 8-hour period.  If traffic is high during this 8-hour period there may be an additional delay to response messages until the backlog has cleared.  Employers should not re-submit their returns because they did not get an acceptance or rejection message straight way.
Year-end returns filed by EDI are not affected at all.

In-Year Filing: It will not be possible to send forms P45, P46 and pension notifications over the Internet using third party software or HMRC’s own filing facilities between noon on 2 April and 8 April.  During this period, HMRC will be upgrading its systems for the new tax year and a number of developers and employers will be testing out the new validations.  If any forms are sent during this period, a message stating “1046 Authentication Failure. The supplied user credentials failed validation for the requested service” will be sent, although some payroll systems may change the wording.  The message does not mean that the password or user id have been entered incorrectly, only that the service is closed.  If an employer’s payroll software does not permit forms to be stored until they can be sent and it is not possible to wait until 9 April to send the forms, paper forms may be ordered and used instead.  Full processing capability for in-year forms is expected to be in place by 14 April.

If form P45(3) cannot be sent during this 7-day period, the paper parts 1a, 2 and 3 of the P45 must still be issued to the employees concerned when they leave.
In-year forms filed by EDI are not affected at all.

Further information:
Notes for Payroll Software Developers  http://www.hmrc.gov.uk/comp/notes-11-4.pdf
Getting ready to send your 2008 employer Return online  http://www.hmrc.gov.uk/payeonline/news-7march.htm
Sending PAYE forms P45 and P46 online in April 2008  http://www.hmrc.gov.uk/inyear/index.htm#downtime

P46 Reporting Requirements

Employees earning between the lower earnings limit and the earnings threshold

Up to 6 April 2008, PAYE procedures, in most situations, require employers to complete a form P46 for new employees who do not provide a P45.  If the employee’s earnings do not exceed the tax/earnings threshold (£100 per week), employers are instructed to retain the completed P46 and only submit it when earnings exceed that threshold.  (Despite this instruction, most employers with computerised payroll systems submit all completed P46s, irrespective of the employees’ earnings, and HMRC does not object to that being done.)

From 6 April 2008, a change to PAYE procedures requires P46s to be submitted as soon as an employee’s earnings exceed the lower earnings limit (£90).  If employers are retaining P46s for employees whose earnings during 2007/08 have not exceeded the tax/earnings threshold in any pay period but their earnings at any point during 2008/09 exceed the lower earnings threshold, HMRC has instructed that the P46 should not be submitted.  If the employer has not already created a full payroll record (not required by PAYE procedures until earnings reach or exceed the lower earnings limit), one should be created, using tax code 543L (cumulative) and incorporating any earnings that have already been paid without the deduction of any tax or NICs.  A P14 should be issued at the end of the 2008/09 tax year.

Further information:
Employer Helpbook E13(2008)  http://www.hmrc.gov.uk/helpsheets/2008/e13.pdf
Notes for Payroll Software Developers  http://www.hmrc.gov.uk/comp/notes-11-4.pdf

HMRC’s PAYE Online Facilities

Employer actions before October 2008

HMRC’s provides a number of PAYE online facilities on its website.  An improved version of the application will be installed in October 2008.  As a result of this change, all data submitted by employers that relates to the period before April 2005 and all unsubmitted data will be deleted from each employer’s part of the online application.

Submitted Data
Data that has been submitted and that relates to tax years 2004/05 or earlier will be deleted from the employer’s part of the online application and employers or, where appropriate, their agents will no longer be able to gain access to it.  It will not effect the length of time that HMRC retains copies of submitted data.

Unsubmitted Data
In addition, HMRC will delete all unsubmitted data, irrespective of the date it was created.  HMRC is not able to view this unsubmitted data but assumes that it includes the full range of information that is supported by the service (P45s, P46s and possibly part end-of-year Returns) which have been completed, never finished and never sent to HMRC.  It may be that the employer thinks that the information was submitted but never got around to it.  Or, it may be information that was partly completed but the employer subsequently decided to file it on paper instead.  Either way, the information has not been deleted and HMRC is storing it for employers.

HMRC recommends that, before October 2008, employers review any such data and take the following action:

• Submitted data that relates to any period prior to April 2005 – decide whether to archive it and how, e.g. by printing it out or downloading it to a computer file
• Unsubmitted data – finalise and submit the following as soon as possible before it is deleted:
• P45, P46 and PENNOT data relating to a date of starting or leaving after 5 April 2008 (Note: starter or leaver information relating to a period prior to April 2008 will have been repeated on the relevant end-of-year submission and does not need to be submitted now)
• P35 or part Return P35 and/or P14 data relating to any year up to and including 2007/08
• P11D, P9D and/or P11D(b) data relating to 2007/08.

Further information:
Notes for Payroll Software Developers  http://www.hmrc.gov.uk/comp/notes-11-4.pdf

Foreign Nationals Working in the UK

New form P46 (Expat) for April 2009

In April 2009, HMRC proposes to introduce a new version of the P46, the P46(Expat).  It will be used specifically in respect of foreign nationals that have been seconded to work in the UK, while remaining employed by an overseas employer.  The data will be capable of both online and paper filing, but employers with 50 or more employees will suffer a penalty if they file on paper.  Employers or their agents will be able to submit the data via EDI or Internet using third party software or HMRC’s Online PAYE facilities.

Employers who file online will be permitted to obtain the P46(Expat) information from an employee electronically provided that:

• the new employee supplying the information electronically provides exactly the same information as required by the P46(Expat),
• the employer puts in place adequate safeguards which would confirm that it was the in-bound Expat, and no one else, who had provided the information, and
• an adequate audit trail is maintained and is available to HMRC in support of any future query or compliance visit.

This new form may not be used by employers who are employing migrant workers and, as a result, the paper form will not be made available from the Employer Orderline.  Employers will be able to download the paper form from HMRC’s website, using a link that will be provided in booklet CWG2 Employer Further Guide to PAYE and NICs.

Further information:
Notes for Payroll Software Developers  http://www.hmrc.gov.uk/comp/notes-11-4.pdf

Employer Helpbooks E10 and E12

Corrections made to payment dates

HMRC has changed the dates, as shown in the first editions of Employer Helpbooks E10 and E12, by which payments must be received from employers that are not required to make their payments electronically if they are sent by post.  The three changes are as follows:

1. E10 Helpbook, page 2 – outstanding payments of tax and NICs for tax year 2007/08 must be received by Saturday, 19 April 2008, not 18 April as shown.
2. E12 Helpbook, page 3 – payment of Class 1A NICs for the tax year 2007/08 must be received by Saturday, 19 July 2008, not 18 July as shown.
3. E12 Helpbook, page 3 – payment of Class 1B NICs for the tax year 2007/08 must be received by Sunday, 19 October 2008, not 17 October as shown.

Further information:
Error in Employer Helpbooks E10 (2008) and E12 (2008)  http://www.hmrc.gov.uk/news/employer-e10-e12.htm

Local Income Tax for Scotland

Scottish government consults on abolition of council tax

In November 2004, a “private member” Bill was introduced in the Scottish Parliament which would have replaced Council Tax in Scotland with a type of local income tax that would be collected through the payroll, paid to HMRC and forwarded to the appropriate local authorities in Scotland.  However, the Bill was rejected at its first Parliamentary stage.

The current Scottish Government is now consulting on its own proposals to introduce a local income tax and to scrap council tax in Scotland.  It is claimed that individuals on low and middle incomes will be better off by an average £350 to £535 a year and only those in the top income decile will, on average, pay more.  Council tax levels will be frozen until the new tax is introduced.

The consultation proposes:

• a 3% rate of tax applied to the income that is subject to basic and higher rates of UK income tax
• a tax free personal allowance that matches the UK personal allowance levels
• collection that complements the existing national system through Pay as You Earn (PAYE) and self-assessment
• exemptions for savings and investment income
• A tax for second homes, which will be subject to local requirements, and broadly comparable to the current council tax on second homes.

The consultation document seeks views on a variety of approaches to the new tax, in particular

• whether the tax rate should be set, with parameters, by local councils instead of being a 3% flat rate
• the different kinds of earnings, e.g. from pensions, savings, investment, second homes, on which the charge should be levied, rather than just on earned income
• the definition of a “Scottish taxpayer”
• alternative methods of collecting the tax, e.g. a Scottish collection agency, or local councils
• whether the tax should be collected at source or by payment.

The deadline for responses to the consultation is 18 July 2008.
Further information:
Plans to scrap council tax published  http://www.scotland.gov.uk/News/Releases/2008/03/11141717
A Fairer Local Tax for Scotland  http://www.scotland.gov.uk/Publications/2008/03/11131725/20

Sex Discrimination on the Grounds of Pregnancy or Maternity Leave

Employment Benefits During Ordinary and Additional Maternity Leave

Following on from the High Court’s decision in the judicial review Equal Opportunities Commission v Secretary of State for Trade and Industry, that changes made to the Sex Discrimination Act 1975 (the “Act”) in 2005 did not comply with the European Equal Treatment Directive or European case law, the Government has made the necessary amendments by means of the Sex Discrimination Act 1975 (Amendment) Regulations 2008.

The following changes come into effect from 6 April 2008:

1. The definition of discrimination on grounds of pregnancy or maternity leave is changed so that it is only necessary for there to be less favourable treatment and to remove the need for a comparator when a woman brings a claim of discrimination on the grounds of pregnancy or maternity leave.
2. The definition of “harassment” is amended to remove the causal link between harassment and the sex of the person being harassed.  The change enables claims to be made by someone who is not subjected to the unwanted conduct himself or herself but the effect of which nonetheless violates his or her dignity or creates an intimidating environment for him or her.
3. It becomes unlawful for an employer to fail to take reasonably practicable steps to protect employees from harassment by third parties where such harassment is known to have occurred on at least two other occasions.

The fourth change is, from a payroll perspective, the most significant.  Section 6A of the Act currently allows a woman to be deprived of her contractual entitlement to remuneration, except for any entitlement to statutory and contractual maternity pay, throughout the entire period of maternity leave (i.e. the first six months of ordinary maternity leave and the second six months of additional maternity leave), without that constituting sex discrimination.  However, it also allows her to be deprived of most of her other contractual benefits during the second six months of additional maternity leave, with the exception of certain benefits related to the ongoing employment relationship, such as termination, redundancy, pension rights, and access to disciplinary and grievance procedures.

The differences in what contractual entitlements may be removed during the two distinct periods of maternity leave were found to be discriminatory by the High Court, so the new Regulations limits the extent to which a woman may be deprived of her contractual entitlements during her entire period of maternity leave solely to “any benefit from the terms and conditions of her employment relating to remuneration”.

The basic definition of the term “remuneration” is unchanged.  It refers to “benefits

1. that consist of the payment of money to an employee by way of wages or salary, and
2. that are not benefits whose provision is regulated by the employee’s contract of employment.”

However, three types of “remuneration” are specifically excluded from the definition.  A woman continues, therefore, to be entitled to receive, during the full period of her maternity leave:

1. statutory and contractual maternity pay, including any increase-related remuneration, i.e. remuneration that is calculated by reference to increases in remuneration that the woman would have received had she not been on maternity leave (“Alabaster” recalculations)remuneration (including increase-related remuneration) in respect of times when the woman is not on maternity leave, i.e. contractual payments due to her in respect of the period before her leave started, or
2. remuneration by way of bonus in respect of times when a woman is on compulsory maternity leave, i.e. the two-week period or, in the case of women working in factories, the four-week period immediately following her baby’s birth.

These changes will mean that women on additional maternity leave will have recourse to the same claims of discrimination as those on ordinary maternity leave.  This will affect employers that provide non-pay benefits to employees while on ordinary maternity leave, e.g. contractual annual leave above the statutory minimum, company cars, mobile phones, etc.,  but cease providing them during additional maternity leave.  They will also have some impact on those employers who currently discount any period of additional maternity leave taken by employees from calculations of length of service for the purposes of certain contractual benefits, such as service-related holiday entitlements and pensionable service.

The third of the exceptions to the definition of “remuneration”, prompted by specific European case law, will enable women to bring claims of discrimination in relation to discretionary bonuses in respect of periods of compulsory maternity leave, such as a failure to pro-rate the payment of discretionary bonuses to include the period of compulsory maternity leave.

Although the Regulations are effective from 6 April 2008, this fourth change applies only where a woman’s expected week of childbirth begins on or after 5th October 2008.  Corresponding changes will be made in due course to Regulation 17 of the Maternity and Parental Leave etc. Regulations 1999.

Further information:
The Sex Discrimination Act 1975 (Amendment) Regulations 2008  http://www.opsi.gov.uk/si/si2008/pdf/uksi_20080656_en.pdf
Explanatory Memorandum to the Sex Discrimination Act 1975 (Amendment) Regulations 2008  http://www.opsi.gov.uk/si/si2008/em/uksiem_20080656_en.pdf

Payroll deadlines during the next month

March 19 – For employers required to pay tax and NICs etc to the Accounts Office monthly, this is the deadline for payment to be received by the Accounts Office, unless made electronically.

March 21 – (March 22 is a Saturday) – For employers required to pay tax and NICs to the Accounts Office monthly, this is the deadline for electronic payments to be cleared into the HMRC bank account.  Payments through BACS must be initiated by March 19 at the latest.

April 5 – This is the final day of tax month 12 and of the tax year.  Tax and NICs etc. for payments made in the tax month to April 5, and any outstanding tax and NICs etc. for the tax year, are due for payment to the Accounts Office by April 19, or by April 22 if paid electronically.

Payroll FAQ's

Rates and Thresholds

What are the tax, NICs and statutory payments rates and thresholds for 2008/09?

Income tax rates and thresholds

The thresholds shown for 2008/09 are based on the rate of retail price inflation at September 2008 (3.948%).  The 2008/09 threshold applies from the first payday on or after 18 May 2008.

Income tax allowances (applicable from 6 April 2008)

The emergency tax code for 2008/09 is 543L.

1 Increased by £1,180 above statutory indexation
* The tax relief on the married couple’s allowances is restricted to 10%.  The married couple’s allowance also applies to couples in civil partnerships from December 2005.

NICs thresholds (applicable from 6 April 2008)

1 Increased by £70 above statutory indexation
* Values defined in statute.  All other values are calculated according to statutory rules.

NICs contracting-out rebates (applicable for 2007/08 and 2008/09)

NICs rates

Statutory Sick Pay (applicable from 6 April 2008)

Statutory Redundancy Pay

Statutory Maternity, Paternity and Adoption Pay

*33 weeks where expected week of childbirth starts on or after 1 April 2007
**39 weeks where expected date of placement falls on or after 1 April 2007

What are the tax, NICs and statutory payments rates and thresholds for earlier years?

Income tax rates and thresholds

Income tax allowances

NICs thresholds

NICs contracting-out rebates

NICs rates – Employer Contributions

NICs rates – Employee Contributions

Statutory Payments