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Significant Changes To UK Tax Regime As Of April 6

Thursday, April 12, 2018

A number of changes to the UK tax regime became effective from the beginning of the new fiscal year, on April 6, 2018, including the introduction of the new Soft Drinks Industry Levy.

The aim of the Soft Drinks Industry Levy is to encourage companies to reformulate their soft drinks. According to the Government, it has already resulted in over half of manufacturers reducing the sugar content of drinks since it was announced in March 2016.

The tax is levied at:

  • GBP0.24 (USD0.32) per litre of drink if it contains eight grams of sugar per 100 millilitres; and
  • GBP0.18 per litre of drink if it contains between five to eight grams of sugar per 100 millilitres.

Another change to the UK tax regime from April 6 was an increase to the personal allowance – the tax-exempt personal income tax threshold – to GBP11,850 (USD16,820) from GBP11,500.

The Association of Tax Technicians (ATT) has released a brief to its members highlighting another change: the end of transitional arrangements that provided tax relief for salary sacrifice and flexible benefit packages agreed for employees prior to April 6, 2017. As a result, it said, some employers will need to consider if they need to recalculate the value of affected benefits, and some employees will face larger tax bills.

The ATT explained: "Transitional protections from tax which had applied to benefits provided to employees under optional remuneration arrangements (OpRA), such as salary sacrifice or flexible benefit packages made prior to April 6, 2017, came to an end last week with the start of the new tax year. The OpRA rules were introduced on April 6, 2017, to reduce the tax savings that an employee might otherwise enjoy by exchanging potential or actual salary for a more tax-efficient benefit."

"Where the OpRA rules apply, they ensure that the value of the benefit subject to tax for the employee is the higher of the earnings given up or the cash equivalent of the benefit. Arrangements entered into before April 6, 2017, were given transitional protection so that the new rules would not apply until the earlier of April 6, 2018, or the date of variation, modification, or renewal of the agreement. It is the benefits under those arrangements which may now be less tax-efficient."

Yvette Nunn, Co-chair of ATT's Technical Steering Group, said: "Employers who continue to provide flexible benefits or salary sacrifice arrangements where the arrangements were made prior to April 6, 2017, should review these to ensure that the value of any taxable benefit is calculated on the right figure. Care needs to be taken as the OpRA rules do not apply to all benefits, and some benefits get a longer period of transitional protection."

"The new rules can operate particularly harshly in some circumstances. Before April 2017, an employee who had chosen to give up salary in exchange for a mobile phone would not normally have paid any tax on the benefit of the mobile provided. This is because the provision by an employer of a single mobile phone to an employee is generally a non-taxable benefit. But now, where a mobile is provided as part of an OpRA, the employee cannot benefit from the exemption. Any such arrangement to provide a mobile phone made prior to April 6, 2017, will have been given one year's grace under the transitional provisions but will now be subject to tax from 2018-19 onwards."

"Employers need to ensure that they use the correct taxable figure when they report the benefits in kind which they have provided to employees at the end of the 2018-19 tax year. Any employer who includes taxable benefits on their payroll will need to do this very quickly, to ensure that they process the correct figure in their first salary payments for 2018-19."

Meanwhile, Fiona Bell, tax partner at RSM, the audit, tax, and consulting services provider, noted a different change of relevance for employers and their employees. She said: "Due to a lapse in EU State Aid approval, the tax reliefs for the most popular share option scheme (Enterprise Management Incentive Schemes – EMI) may not be available for options granted after April 6. HMRC confirmed this week that it has yet to receive final confirmation from the EU Commission that approval to renew the arrangement has been agreed."

"There are parameters within which the EU Commission has to respond, and HMRC was discussing the renewal process in good time, but the actual reason for this lapse in the State Aid approval is unknown. Until recently we had been told the Government was working to ensure there was no problem so it was inconvenient for companies to have just two days' notice by HMRC that State Aid approval was not going to be received in time."

"It means that any tax advantages for EMI options granted before 11pm tonight [April 6] will still apply, but there is no certainty that EMI options granted after this point will be eligible until such time as HMRC receives EU State Aid approval. Any businesses planning to issue options intended to qualify as EMI share options that are not able to meet today's deadline will need to consider delaying until the issue is resolved."

"EMI schemes have been in place of 18 years and the EU Commission has previously given approval. Businesses, particularly smaller companies, need to have the time to plan and implement key schemes and the lapse in approval and uncertainty it brings adds further operational and financial pressure for SMEs, which is not helpful within a turbulent trading environment," she said.