By Adam Mason, Consulting Director
Like many within the employee reward sector, Benefex was intrigued by the outcome of the Autumn Statement. When the consultation opened in August, the industry was offered a taster of the Chancellor’s plans. The statement marked the first opportunity for the chancellor to provide his conclusions. With the national press referring to a stealth tax and a very short list of exclusions, many were quick to conclude that the employee reward sector was on the edge of an apocalyptic event. As the dust settled, though, it became apparent that many of the most sought-after benefits would remain unaffected. Many were already taxed and included as part of the P11D, or taxed at source. Perhaps of greater interest was the detail promised for the week commencing 5 December. The treatment of guaranteed income protection and life assurance appeared unclear following the Autumn Statement. The effective date ambiguously referred to as “April 2017”.
The detail has now arrived, however, much like the opening of a pair of novelty socks on Christmas day, we were all a bit underwhelmed by the absence of any significant detail.
What was missing?
- We now have confirmation that the effective date is, as expected, 6 April 2017. This date will be adopted for the conclusion of the grandfathering arrangements in April 2018 (for most benefits affected), and April 2021 for vehicles, school fees and accommodation. What needs clarification is what needs to completed in advance of this date. Taking the example of a car; is it the date the contractual terms are amended? Or is it when the new vehicle is delivered, and arrives on the employee’s driveway?
- The reference to ‘intangibles’ included within the consultation has never again been mentioned. We were advised within the consultation that holiday might constitute an intangible benefit, but that definition has not been expanded (despite consultation responses making a number of valid suggestions). Holiday was an inevitable exclusion and presumably this definition does extend wider, not least because to not pay someone for not working is a norm of society.
- Guaranteed income protection was also a notable omission from the additional detail released. Presently no tax or national insurance is paid on the contribution toward this cover by the employee, and this is instead taxed as it is drawn down on by the employee. The new legislation would suggest a change but this could have a significant impact on the way this benefit works.
What did we learn?
All that said, we should acknowledge the other scraps of information we received:
- Life assurance appears to have been added to the list of exclusions announced. It’s unclear whether this is only for registered schemes; however, amendments to the tax manual provide some guidance:
“Excluded exemption” means an exemption conferred by any of the following provisions—
(a) section 239 (payments and benefits connected with taxable cars and vans and exempt heavy goods vehicles)
(b) section 244 (cycles and cyclist’s safety equipment)
(c) section 266(2)(c) (non-cash voucher regarding entitlement to exemption within section 244)
(d) section 270A (limited exemption for qualifying childcare vouchers)
(e) section 307 (death or retirement benefit provision)
Thinking back to the article we shared at the closure of the consultation process, Benefex had argued the merits of excluding this commonly used benefit, which is only drawn upon by the families of an employee in their time of need. After reading the above, we’re approaching this with cautious optimism.
We have also learned that the Treasury is keen to close any loophole where a benefit is changed, modified, or renewed. Therefore, where a benefit is effective in advance of the 6 April 2017 deadline, any modification thereafter would be seen as a new benefit commencing, and therefore, fall into the new tax regime.
So, what next?
It is inevitable that, in advance of the Finance Act being presented, there will be much debate, discussion and challenge. It may be that this story has further chapters to come but, for businesses, they must do what they do best; react as best they can, and plan based on what we do know. It is an unwelcome distraction at a time when the economy continues to perform well despite an uncertain backdrop. Nevertheless, businesses in the UK have long become accustomed to navigating this VUCA [Volatility, uncertainty, complexity and ambiguous] world we now know. Trump as the next Commander and Chief, Brexit and England losing to an Iceland team filled with semi-professionals in the European Championships – 2016 was a year of unpredictability.