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Legislation Day 2020: employment taxes round up

Legislation Day 2020: employment taxes round up

Which ‘L-Day’ announcements are relevant to employers?

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Several draft Finance Bill 2021 clauses and consultations published on 21 July are of interest to employers. This article summarises the key points.

Termination payments

The part of a termination payment treated as made in respect of the notice period (Post-Employment Notice Pay or ‘PENP’) is taxed as earnings.

Where an individual is paid in equal monthly installments, but their notice period is not expressed as a whole number of months (e.g. in days or weeks), the statutory formula for calculating PENP can give different results depending on when notice is served. In practice, to address this anomaly HMRC allow PENP to be calculated on an alternative basis if to do so is to the employee’s advantage. Additionally, when the new termination payments regime was introduced by Finance (No 2) Act 2017, an unintended effect was that some non-resident individuals are not subject to UK income tax on PENP that relates to a UK employment.

Draft provisions have been published to legislate for the alternative basis of calculating PENP, and to bring the tax treatment of PENP received by non-residents into line with that received by UK residents.

Both these changes will apply to individuals who are both terminated and receive the relevant termination payment on or after 6 April 2021. In the meantime, in relevant cases HMRC will continue to accept the alternative calculation of PENP.

Van benefit in kind charges from 6 April 2021

Draft legislation has been published to reduce the cash equivalent of the benefit of a zero emissions van to nil. This change comes into force from 6 April 2021.

Enterprise Management Incentives (EMI)

Individuals who, due to the COVID-19 outbreak, are furloughed, working reduced hours or taking unpaid leave, might be unable to meet the EMI working time requirement. Such individuals could potentially lose some of the tax advantages associated with their existing EMI options, and/or be prevented from being granted new EMI options.

Finance Act 2020 provides that where an individual ceases to meet the working time requirement for reasons connected with the COVID-19 outbreak, this will not be treated as a ‘disqualifying event’ in relation to their existing EMI options.

Draft legislation published on L-Day similarly provides that new EMI options can be granted to employees who are unable to meet the working time requirement due to the COVID-19 pandemic.

Both these measures apply during the period 19 March 2020 to 5 April 2021.

HMRC have confirmed that, in order to rely on these provisions, employers and employees must retain evidence to show a link between the relevant reduction in working time and the COVID-19 outbreak.

Collective money purchase pension schemes

The Pension Schemes Bill currently before Parliament makes provision for collective money purchase pension schemes to operate in the UK from next year. Draft measures have been published to allow these arrangements to be established as registered pension schemes, and ensure their tax treatment mirrors that of existing registered pension schemes.

National insurance contributions (NIC) holiday for employers of veterans

consultation has been published on relief from employer’s NIC on salaries paid to qualifying veterans for the first 12 months of civilian employment. In summary, this invites views on how ‘veterans’ should be defined, which periods should qualify, and how the relief should be administered. This closes on 5 October.

What happens now?

KPMG will review the draft legislation and consultations published on L-Day and engage with HMRC to clarify points of detail and suggest improvements where appropriate. If you have any questions or other points you would like us to consider for inclusion in our representations, please contact Matthew Hunnybun, Chris Barnes, or your usual KPMG contact.

For further information please contact:

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