Pick’n’mix employee benefits in the 2017 Finance Bill aren’t all so sweet

Wed 21 Dec 2016

The employment tax clauses in the draft 2017 Finance Bill include shorter (relatively- this is tax, remember) provisions that cover:
4. Taxable benefits: ultra-low emission vehicles
5. Taxable benefits: asset made available without transfer
6. Pensions advice
7. Employee legal expenses
8. Termination payments: treatment of certain legal expenses etc

Clause 4- Ultra-low emissions vehicle benefits in kind

From 2020/21onwards an ultra-low emissions vehicle (ULEV) will be defined as a vehicle whose emissions of CO2 are less than 75 grams per kilometre. The clause caters for zero-emission vehicles (ZEVs) as well as hybrids with emissions between one and 50 gm/km, based on their range in pure electric mode; the scale charges increase to favour vehicles that can run further without running their petrol/diesel engine.
Emissions figures are expressed in gm/km which is the international standard.
Range in electric mode is expressed in miles.
The BiK percentages (the proportion of new vehicle list price) taxable range from 2% for the lowest-emission vehicles to 19% for those emitting 74 gm/km.

The rates for older cars and cars without a CO2 emissions rating will generally be increased by 1%, apart from cars that are incapable of emitting any CO2  by being driven (older electric vehicles) which will see their BiK percentage reduced from 16% (2019/20) to 2%.

Of course a lot of traffic jam can flow through even the most congested section of the M25 between now and 2020 but it seems likely that these new rates will arrive eventually.

Clause 5 – Assets made available without transfer

Effective 2017/18 onwards
For assets that, unlike e.g. cars, do not have specific charging provisions the present rules make no allowance for periods of unavailability and reductions for any period before an asset is provided, after it is withdrawn or during which it is temporarily unavailable depend on concessions by HMRC who may allow benefits to be reduced or allocated among employees who share the use of an asset but it this treatment is ill-defined and application is inconsistent. The draft clauses set out to provide a more clearly defined statutory framework for adjusting the BiK value to periods of actual availability.
The value of the BiK is unchanged at 20% of the market value of the asset at the time when it is first made available and, unlike say a car, additional costs such as insurance and maintenance are separate benefits too.
Charge on availability
From 6 April 2017 a benefit will be charged whenever the asset is available to the employee, or a member of their family or household.
But assets of which private use is not allowed at any time in the year when it is provided and which are not actually used privately will be excluded from charge.
Reduction for non-availability
The benefit is reduced proportionally for any day on which the asset is not available in a tax year. The asset is not counted as available on any day:
• before the asset is made available;
• after it is last made available;
• when, for more than 12 hours in that day it-
o is unfit for use,
o is being repaired or maintained,
could not be lawfully used,
o is in the hands of a person unconnected with the employer or employee, who has a lien over it, or
o is used in a way that is neither use by nor at the direction of the employee; or
• the employee uses the asset in the performance of the duties of their employment, and for no other purpose.
Shared use
Where an asset is made available to more than one employee the benefit cannot exceed the amount it would be if it is used by one employee alone, i.e. taking account of reduction for days when it is not available to or used by any employee (s 205B). The apportionment must be made on a just and reasonable basis: this is the only sensible option really, since it would be impossible to concoct a formula for making the apportionment needed in every case.

Pensions advice

Effective from 2017/18 onwards there will be a specific exemption for advice provided by an employer to:
o an employee;
o an ex-employee; or
o a prospective employee.
The advice must be provided to all employees or all the employees in a particular location who:
• have reached retirement age;
• are within five years of reaching retirement age; or
• are forced to retire due to ill-health.
The employer may arrange for or provide the advice or reimburse the cost of advice in connection with the employee’s;
o pension arrangements; or
o use of their pension fund.
The explanatory notes indicate that the advice is not restricted to pensions, but may also encompass general financial and tax issues relating to pensions to enable individuals to make more informed decisions about saving for retirement.

£500 limit
The maximum value of advice provided or paid for by an employer or ex-employer is £500 per year. That limit applies on a per employment basis, so an employee who has two roles with the same employer has only one £500 annual limit but if they work for two unconnected employers each employer may provide advice worth up to £500 per year.
Relevant pension age
The age the employee must have reached, or be within five years of reaching the relevant pension age which is either:
• the employee’s “protected pension age” under a registered pension scheme operated by the employer; or
• if the employee is not a member of such a scheme, the employee’s normal minimum pension age, currently 55 (FA 2004 s 279(1)).
Ill health
There is no age limit on the ill-health condition: it requires that the employer be provided with evidence from a registered medical practitioner that the employee is incapable of carrying on their occupation due to physical or mental impairment and will continue to be so. “Impairment” is not further defined and would appear, sensibly, to extend beyond specific debilitating illnesses or conditions and so to encompass situations where age or bodily ‘wear and tear’ bring the employee to the point where they can no longer continue “in that occupation”. So a semi-professional rugby player who is also employed as an orchestra musician might be able to receive tax-free pension advice from the rugby club when chronic knee trouble ends their sporting career. There is no requirement that the medical condition be work-related, so if a hand injury suffered playing rugby ended the person’s musical career as well, they could receive tax-free advice at the orchestra’s expense as well as from the rugby club.
Former £150 exemption revoked
The ‘minor benefits exemption’ that allowed a £150 exemption for advice, restricted to advice about making pension provision, is revoked as from 6 April 2017.

Employee legal expenses

In an increasingly litigious world employees are more likely than ever to be involved in litigation or other legal, or quasi-legal proceedings such as public enquiries or professional disciplinary matters. But at present relief is only available for expenses incurred and liabilities paid where legal action is taken or threatened against the employee personally. The relief applies to expenses borne personally by the employee, or reimbursed or paid directly by the employer, including the cost of insurance against such liabilities.
Clause 7 extends relief to other costs incurred in connection with the employment regardless of whether the employee faces any personal accusation or legal action. It now includes costs or expenses incurred in connection with:
• the employee giving evidence about matters related to the employment in or for the purposes of-
o a proceeding (i.e. court case) or other process (e.g. professional body hearing), regardless of whether the employee is involved in the hearing, or
o an investigation, regardless of whether likely to lead to any proceeding or process involving the employee;  or
• a proceeding, process or investigation in which –
o the employee’s acts related to the employment;  or
o any other matters related to the employment
are being, or are likely to be considered.
This is quite widely drawn and includes any expense that genuinely derives from a person’s capacity as employee or office-holder (e.g. a manager who is responsible for the actions of others as part of their job description) or acting in the performance of the duties of the employment. Problems may arise in cases where the employee exceeds their authority: such acts are likely to be covered because the new provision uses the word “includes” and there is no indication that the examples given are exhaustive.
There is no need for a process or proceeding to actually take place: it is enough that they are considered likely, so as to justify preparation on the part of the employee or preliminary enquiries being made by the relevant authority.

This is a welcome extension of relief but HMRC can be expected to watch it carefully, given that the compensation exemption has been abused in the past for tax avoidance purposes.
Insurance
Insurance taken out to cover any of the above types of expense is also a deductible cost, whether borne by the employer or employee.
Clause 8- Termination payments: treatment of certain legal expenses etc.
This is a minor correction to an anomaly that should never have been allowed to arise in the first place. ITEPA 2003 s 409 provides relief where an ex-employee makes a payment of legal expenses related to the past employment, or pays for indemnity insurance to cover the risks of personal legal action arising after termination of employment in respect of their actions when in the employment. Although s 409 as it currently stands exempts cash payments and non-cash benefits to an employee who has taken out insurance or paid legal expenses relating to claims based on past service, there is no complementary exemption for cases where the employer settles the ex-employee’s liability on their behalf.
The exemption covers costs and expenses incurred that would have qualified for s 346 relief if paid during employment but which are paid after termination. Although s 346 has itself been broadened in scope and may cover some post-termination payments, the Government felt it necessary to ensure that ex-employees are fully exempt in all cases where the employer bears the cost, regardless of the precise method. Most cases can be expected to fall within the amended s 346 but the amendments to S 409 make that sweeper-up section properly comprehensive.