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United Kingdom – Is Autumn Budget an End to Austerity?

United Kingdom – Is Autumn Budget an End to Austerity?

In this report we cover some tax measures affecting global mobility, as well as individual taxpayers and their employers, that were either previously announced or are part of this year’s U.K. Autumn Budget

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The Autumn Budget, delivered by the U.K. Chancellor of the Exchequer on 29 October 2018, was badged as the “end of austerity,” as the Chancellor promised a brighter future for British taxpayers.1  There were plenty of announcements that appeared to indicate just that – an end to austerity – although the Budget was fairly light in terms of content affecting global mobility.2

WHY THIS MATTERS

For employers of globally mobile employees there is always a great deal of interest in Budget measures as they can have a direct impact on the cost of assignments.

Over recent years there have been significant changes introduced relating to the taxation of non-domiciled individuals and the treatment of termination payments, however no major changes were announced this Budget.

For tax compliance and cost projection purposes, taxpayers and their tax service providers should be aware that the 2019/2020 rate bands for personal income tax have been adjusted upwards resulting in a potential reduction of tax of up to £860 per year.

Overview of Main Measures

Short Term Business Visitors (STBVs)

As originally announced in the 2018 Spring Statement, the government launched a consultation on the tax and payroll treatment of Short Term Business Visitors from overseas branches of U.K. companies and related issues, with the aim of reducing the compliance burden for employers.  The government asked for opinions on two potential policy options:

  1. A new tax exemption for STBVs from overseas branches of U.K. companies; and
  2. Extending the Special Annual PAYE Scheme U.K. work-day limit from 30 days to 60 days.

For details of the Spring Budget announcement and KPMG’s response to the original consultation, see GMS Flash Alert 2018-075 (18 May 2018).

Following a review of the responses, the government announced that the following two changes will be made to the Special Annual PAYE Scheme with effect from 6 April 2020:

  1. The existing 30 U.K. work-day limit will be extended to 60 days.
  2. The reporting and payment deadline will be extended from 19 April to 31 May.

The government has decided not to introduce a new tax exemption for STBVs from overseas branches of U.K. companies.

HM Revenue and Customs’ full response to the consultation can be found in the following document (PDF 190 KB).

KPMG LLP (U.K.) NOTE

The extension of the 30 U.K. work-day limit to 60 days will be welcomed by employers, as it will help ensure that more of their STBVs can be included within the Special Annual PAYE Scheme, avoiding the need to undertake strict payroll reporting and tax withholding every month.

The extended reporting deadline for the Special Annual PAYE Scheme will also be helpful, as this will provide employers with an extra month to analyse data, and it also aligns the Special Annual Payroll Scheme reporting with that for the Appendix 4 Short Term Business Visitors Report (which applies to treaty cases where the employer is relieved of applying PAYE).

However, the changes will not alter the scope of the underlying analysis required in respect of a company’s STBV population, which can be complex, involving many stakeholders.

Capital Gains Tax on U.K. Residential Property

Under current U.K. Capital Gains Tax legislation, an individual can claim relief for any period where the relevant property is the individual’s “Principal Private Residence” (PPR), i.e., his/her main home.

In addition, the individual can claim relief for the final 18 months of ownership, where the property had been the individual’s PPR at any point during his/her ownership. 

The individual can also claim letting relief for any periods where the property is let out.  In this case, the relief is limited to the lesser of:

  • £40,000;
  • the portion of the gain related to the period when the property was let out; and
  • the amount of PPR already calculated.

The government proposes to make the following two changes with effect from April 2020:

  • letting relief will only be available in circumstances where the owner is in shared occupancy with the tenant; and
  • the final period of exemption will be reduced to nine months.

The government will consult on the proposed changes before legislating.  It is not yet known from when these changes will apply and we expect further details in the consultation.

KPMG LLP (U.K.) NOTE

These changes may affect outbound assignees from the U.K. who own U.K. property, as it is common for assignees to rent out their U.K. property when on assignment overseas.  Such individuals currently may be able to claim relief for the period when their property is rented out, but the proposed changes will limit this.  The reduction to the final period of exemption is likely to impact individuals affected by delays to selling their home.  This measure will therefore increase any U.K. Capital Gains Tax due on the sale of the property.

Off-Payroll Workers in Private Sector

The lead option in the government’s recent consultation on improving “IR35” compliance – extending the 2017 public sector reforms to the private sector – will come into effect from April 2020.  

This change will see responsibility for determining whether an engagement falls within the IR35 regime, moving from the worker’s Personal Service Company (PSC) to the end user.  Where an employment relationship is deemed to exist, the end user of the services would be responsible for operating PAYE/NIC on payments made to those PSCs if it pays them directly.  Otherwise, if the end user has contracted with an agency and the agency is paying the PSC for the services rendered, then the agency will be responsible for applying PAYE/NIC to those payments based on the end user’s IR35 determination.

KPMG LLP (U.K.) NOTE

Our discussions with stakeholders during the recent consultation on IR35 in the private sector indicated that 18 months was the minimum realistic lead-in time for larger businesses to accommodate this change.  This said, businesses will still need to move quickly to understand the requirements of the new regime, assess their current systems, and implement new procedures and processes so that they can comply with the new rules in time for April 2020.

Whilst this is not a specific mobility issue, global mobility professionals will nevertheless want to be aware of the rules and how they impact the labour supply chain.

Termination Payments and National Insurance

Non-contractual, ex-gratia termination payments are currently exempt from National Insurance.  As originally mentioned in the Autumn 2017 Budget, these payments were due to become subject to Employer’s National Insurance from April 2019.  However, the government has confirmed that this change has been deferred until April 2020.

As previously covered in GMS Flash Alert 2018-122 (18 September 2018), the government had already announced it removed its plans to abolish Class 2 National Insurance.

KPMG LLP (U.K.) NOTE

It is expected this deferral will be welcomed by employers, as it will save them the cost of National Insurance contributions on termination payments for a further year.

Other Measures

  • No further announcements were made in respect of overseas accommodation and subsistence scale rates.
  • The pension Lifetime Allowance will increase in line with CPI from £1,030,000 to £1,055,000 from 6 April 2019. The Annual Allowance remains at £40,000 per year.

Personal Income Tax Rates

Income tax rates and thresholds for 2019/2020 are as shown in the table below. The prospective increase in the personal allowance and rate bands will be welcomed by taxpayers and employers.

  Rate 2018/19 2019/20
Personal Allowance 0% £11,850 £12,500
Basic rate 20% £0 - £34,500 £0 - £37,500
Higher rate 40% £34,501 - £150,000 £37,500 - £150,000
Additional rate 45% Over £150,000 Over £150,000

Source: KPMG LLP (U.K.)

The tax rates for Scottish taxpayers will be set by the Scottish Parliament early next year.

Additionally, the National Assembly for Wales will set income tax rates for Welsh taxpayers from April 2019. The rates for the 2019/20 tax year are expected to be in line with the England and Northern Ireland rates.

Next Steps

We are expecting a number of more detailed documents and consultation papers to be released over the coming weeks.  

KPMG LLP (U.K.) will endeavour to keep readers informed of any further developments that concern individuals, including those on international assignment, and their multinational employers.

FOOTNOTES

1  For the U.K.’s "Budget 2018," including the Chancellor’s speech and related documents, click here.

2  For coverage of last year’s budget, see GMS Flash Alert 2017-175 (22 November 2017).

3  See GMS Flash Alert 2018-075 (18 May 2018). 

The information contained in this newsletter was submitted by the KPMG International member firm in the United Kingdom.

© 2021 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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Flash Alert is an Global Mobility Services publication of KPMG LLPs Washington National Tax practice. The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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