Finance Act 2008 - Summary of payroll-related changes

Written by Ian Congreave - Filed under: Legislation and Case Law - Income Tax on August 4th, 2008

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UK flag The Finance Act 2008 completed all of its stages before Parliament went into recess on 23 July. Most of the payroll-related measures included in the Act are not news but the following notes summarise the changes that are now in force. (The references after each item are the section number of the Act and, where known, the date from which the measure is effective in law.)

Income tax
The basic rate of tax for 2008/09 is 20% and the higher rate is 40%. (s.1)

The personal allowance for those aged

under 65 is £6,035, (s.2)
65 to 74 is £9,030, and (s.3)
75 and over is £9,180 (s.3)

and confirmation that the statutory indexation rules for all three personal allowances have not been applied for 2008/09.

The basic rate limit for 2008/09 is £34,800, although it may be assumed to be £36,000 until 7 September 2008. (s.4)

Periods of residence
An individual is not treated as resident in the UK if, in a tax year, the individual spends less than 183 in the UK.

A day counts if the individual is in the UK at the end of the day, but not if the individual departs on the next day and did not engage overnight in activities that are substantially unrelated to the individual’s passage through the UK. (s.24) (Effective for 2008/09 and later tax years)

Remittance basis
The remittance basis of taxation for UK residents who are either not domiciled or not ordinarily resident in the UK is changed so that, if they continue to pay tax only when income and gains arising overseas are brought into the UK, they no longer qualify for any of the personal tax allowances. (s.25 and Schedule 7) (No commencement date)

Living accommodation
The provision by a company of living accommodation outside of the UK for a director or other officer or a family or household member (“the director”) is not a taxable benefit if

the company is wholly owned by the director, or by the director and others, and
the company has been the holding company of the property at all times since it first owned an interest in the property, which interest provided a right to exclusive possession of the property.

However, the exemption is lost if

the interest in the property was acquired at undervalue
a company connected with the director or an employer of the director has incurred expenditure in respect of the property since it was first owned, or any borrowing from a connected company has been outstanding, or
one of the purposes of providing the living accommodation is the avoidance of tax or NICs. (s.45) (Effective retrospectively)

Company cars
The lower CO2 emissions threshold for determining the appropriate percentage is 135 g/km for 2008/09 and 2009/10, and 130 g/km for 2010/11. (s.47)

Van fuel benefit
Corrections are made to the legislation to ensure that a tax charge does not arise when an employer makes payments or reimburses the employee for the cost of fuel for private use, or provides vouchers or credit tokens for that purpose, and the employee is already subject to the van fuel scale charge. (s.48) (correction to legislation, already effective)

Employment-related securities
In order to close a tax avoidance loophole in the taxation of employment-related securities, the meaning of the term “amount that constituted earnings” is clarified so it applies only to income that has been subjected to income tax. (s.49) (Effective in relation to disposals made on or after 12 March 2008)

Council Tax Relief for the armed forces
No income tax liability arises on the payment to a member of the armed forces of a subsidy towards their council tax bills. (s.51) (Effective in relation to payments made on or after 1 April 2008)

Information and inspection powers
HMRC is provided with new information and inspection powers across the main taxes.
(s.113 and Schedule 36) (No commencement date, expected to be 6 April 2009)

Access to computer records
HMRC officers are given powers to gain access to any computer that contains documents that they are authorised to see in order to inspect or copy them, and to require any person who uses the computer to provide assistance to enable them to do so. (s.114) (No commencement date)

Record-keeping
HMRC is provided with new powers to make regulations that will align the record-keeping requirements for the main taxes. (s.115 and Schedule 37) (No commencement date)

Disclosure of tax avoidance schemes
The existing disclosure rules are extended to ensure that all users of a disclosed scheme are provided with a scheme reference number, that they pass on that number to other known parties to the arrangement, and that they notify HMRC of their use of the scheme in all cases. (s.116 and Schedule 38) (No commencement date)

Time limits for assessments
The time limits for HMRC to change the amount of tax due by assessment are aligned more closely across the main taxes. For income tax, the time limits are:

where loss of tax discovered – 4 years
for failure to tax reasonable care – 6 years (down from 20 years), and
for deliberate understatement or failure to notify liability – 20 years.

(s.118 and Schedule 39) (No commencement date)

Penalties
The new penalty regime across the main taxes, as introduced by the Finance Act 2007, is extended to include, among the returns for many minor returns, the registered pension scheme return. (s.122 and Schedule 40) (No commencement date)

Interest on unpaid tax in event of disaster or emergency
If the event declares a disaster or emergency to be of national significance, HMRC may issue an “agreement for deferred payment” which specifies a start date and an end date to the period of deferment. During that period, if a taxpayer does not pay sums that are required by law to be paid, no interest will be charged on the sum and no liability to a surcharge will arise on the sum. An agreement may require payments to be made in instalments. (s.135)

The first Order under these provisions, the Finance Act 2008 Section 135 (Disaster or Emergency) Order 2008, was made on 22 July 2008. It comes into force on 13 August 2008 and applies retrospectively to the floods that occurred in the UK during June and July 2007.

Payment by credit card
HMRC has taken powers to make Regulations that allow a fee to be charged when payments of tax by a specified method are made, but only in circumstances where HMRC expects to be charged a fee in connection with the payment.

After consultation, HMRC announced in January 2008 that it was prepared to accept payment of tax by credit card (a procedure that does not require new legislation), subject to a requirement for the taxpayer to meet the transaction fees (which does require legislation). Regulations have already been made using these powers and HMRC will initially accept credit card payments by telephone only and will charge a fee of 0.91% of the payment.

Further information:
Finance Act 2008
Finance Act 2008 Section 135 (Disaster or Emergency) Order 2008
Explanatory Memorandum to the Finance Act 2008 Section 135 (Disaster or Emergency) Order 2008
The Taxes (Fees For Payment by Telephone) Regulations 2008
Explanatory Memorandum to the Taxes (Fees For Payment by Telephone) Regulations 2008

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Written by Ian Congreave - Payroll writer and lecturer

Filed under: Legislation and Case Law - Income Tax on August 4th, 2008