Budget 2010

Employment Issues

Company cars and vans

Employees who are provided with a company car for their private use, which is propelled wholly by electricity, currently pay tax on the benefit which is based on 9% of the list price of the car. From 6 April 2010 this percentage will be reduced to 0% therefore reducing the benefit calculation and tax liability to nil.

The definition of a qualifying car will however be amended to remove the reference to ‘wholly electrically propelled cars’ to ‘cars which cannot produce CO2 engine emissions under any circumstances when driven’.

In a similar vein, employees who are provided with a qualifying company van will have a nil benefit charge. The definition of a qualifying van will be as for a qualifying car.

A new 5% band will be introduced from 6 April 2010 for a company car which has an approved CO2 engine emission figure of 75gm/km or less.

All the measures will apply for five years.

Employer-supported childcare

Prior to the Budget, changes were announced to the tax breaks for employer-supported childcare. There is a £55 per week limit on the amount of exempt income associated with childcare vouchers and directly contracted childcare for employees in an employer’s scheme. From 6 April 2011 this will be restricted in cases where an employee joins a scheme and their earnings and taxable benefits are liable to tax at the higher rates.

Employers will be required, at the beginning of the relevant tax year, to estimate the level of employment earnings that their employee is likely to receive during that year, ignoring potential bonus and overtime payments, but including other known taxable benefits.

If the level of estimated earnings and taxable benefits:

• is within the basic rate band, the employee will be entitled to relief on up to £55 per week
• exceed the 50% rate threshold for the year, the employee will be entitled to relief on £22 per week
• is between the above two bands the employee will be entitled to relief on £28 per week.

Anyone in a scheme by 5 April 2011 will not be affected by these changes as long as they remain within the same scheme.

Employer-supported childcare – salary sacrifice

A further announcement was made on Budget Day. Employees at or near the National Minimum Wage (NMW) cannot normally take advantage of salary sacrifice arrangements if the result would be to depress the level of their income below NMW rates. Where an employer excludes these employees from participation in a scheme, the exemption from the chargeable benefit on childcare should not apply to the scheme as a whole.

The government intends to legislate to ensure that employers who exclude such employees are able to benefit from the exemption for employer-supported childcare.

Enterprise Management Incentives (EMI)

The requirement that a company granting qualifying EMI options to its employees must operate ‘wholly or mainly’ in the UK is to be amended. A company granting EMI options will now be required instead to have a ‘permanent establishment’ in the UK. This measure will be included in a Finance Bill as soon as possible in the next Parliament.

Employment-related securities and geared growth

The government will consult on the taxation of returns from geared growth arrangements connected with employment-related securities, to ensure that income from employment is taxed correctly.

Future action on the use of trusts and other vehicles to reward employees

The government intends to take action to tackle avoidance through the use of trusts and other vehicles to reward employees.

If you would like to discuss any of the above please contact us.

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