Employment Issues
October 2007 Pre-Budget Report
Company cars and the fuel scale charge
Where a car is provided for an employee’s private use, a taxable benefit arises which is based on the list price of the car and its CO2 emissions. The percentages range from 15% to 35% for most cars. There are currently discounts available for environmentally friendly cars and from 6 April 2008 there will be a 2% discount for cars that have been manufactured to run on E85 fuel.
If free fuel is provided for private motoring then a fuel benefit tax charge arises based on the percentage used for the car benefit and a ‘multiplier’, which is currently £14,400.
For 2008/09 the multiplier will increase to £16,900.
Comment: The fuel scale charge figure has not changed since it was introduced in 2003. This rise, combined with an increase in the car benefit percentages for 2008/09, means that many employees will see an increase in their tax bills from next April.
Employers should seriously consider whether the fuel benefit is worth maintaining, as the associated Class 1A payable by employers on benefits in kind will also go up.
National Insurance Contributions (NICs)
This year’s main Budget included significant proposed changes to the limits between which NICs are payable. For 2008/09 the upper earnings limits (UEL), above which employees continue to pay contributions of 1% on earnings, will be increased by £75 per week above indexation.
The upper profits limit for Class 4 National Insurance for the self-employed will also be increased in 2008/09 by £75 per week above indexation.
In the following year the upper earnings limits will be aligned with the point at which the higher rate of income tax becomes payable.
Comment: The government claims the increases in National Insurance are aimed at simplifying the tax system but it comes at quite a cost to employees and the self-employed.
Other NIC changes
Under an exemption that has existed since at least the 1960s employers in the construction industry can pay into a third-party pooled holiday pay scheme from which employees receive their holiday pay.
There is no liability to deduct employer and employee NICs on that payment.
HMRC have become aware that this exemption is being used by large employers of workers outside the construction industry, putting significant amounts of revenue at risk.
From 30 October 2007 the exemption is withdrawn for all businesses outside the construction sector.
For businesses within the construction sector a five year transitional period will be introduced before the exemption is withdrawn completely
on 30 October 2012.
Comment: All employers using this scheme should review them before 30 October 2007 to ensure that they qualify for the construction sector five year transitional period.