Fundamental changes ahead for employers

With less than a week to go to the big day, in RSM Tenon's final pre Budget reviews we take a look at what employers can expect in this years Budget.

PAYE system
Perhaps the most interesting news for employers this year will be what the Chancellor says on the PAYE system. With HMRC still smarting from the recent fracas surrounding PAYE underpayments the Chancellor will be keen to restore the public’s confidence. Last week the Office of Tax Simplification recommended integrating the PAYE and NIC system – we expect the Chancellor to endorse this approach but it will take several years before anything changes.

National Insurance
We already know that NIC will increase by 1% to 13.8% from 6 April 2011, but will the Chancellor go one step further and announce another increase? At the same time he could extend the NIC holiday scheme to provide further assistance to employers with small workforces.

Taxation of benefits
We know that tax relief on childcare vouchers will be restricted to basic rate from 6 April 2011, but will the Chancellor look to restrict tax relief on other benefits. The government has been tinkering with the whole area of the taxation of benefits for some time now, gradually bringing more and more benefits into the scope of PAYE and NIC. Look out for further changes in this area together.

IR35
If the Office of Tax Simplification’s recommendation of merging the PAYE and NIC systems is adopted then the controversial issue of IR35 will to some degree go away. However this will not happen overnight so the Chancellor really needs to do something in the short term. We think total abolition is unlikely, at least until the PAYE and NIC systems are integrated, so expect some changes to how HMRC currently administers and applies IR35.

Disguised Remuneration
We have already touched on disguised remuneration and the impact of the proposed new rules from 6 April 2011 in individuals. There will also be an impact on employers as they will need to track contributions to funds for employees. How should employers address the issue of leavers? What recording and reporting obligations will be imposed?

Action point
If you have employees considering joining your Employer assisted Childcare scheme they should do so before 5 April 2011 to secure tax relief at their marginal rates.