The complications of owning a company car continue, with rules announced in previous years coming into force and current announcements of changes to take effect later.
For 2013/14, the percentage of the original list price which is charged as the cash equivalent of a company car will increase by 1% for all vehicles with CO2 ratings between 95g/km (which increases from 10% to 11%) up to 215g/km (where the maximum 35% will be reached – previously 220g/km). For 2015/16, new bands of 0 – 50g/km (5%) and 51 – 75g/km (9%) will be introduced, and the highest emitting cars will have a new maximum percentage of 37%. Further changes have been published going forward into 2016/17, so anyone choosing a new company car now can work out the tax effect of a current decision until they are likely to change it.
The taxable benefit of free fuel provided for use in a company car is calculated by multiplying the same percentage by a fixed figure. This will increase by more than inflation for 2013/14 to £21,100 (2012/13: £20,200), so for many employees the taxable amount for fuel will increase for two separate reasons – the percentage and the fixed figure both increasing.
The Autumn Statement included an announcement of the introduction of a new ‘employee shareholder’ status. Employees would receive certain tax advantages on the receipt of shares in their employer, but would forgo certain employment rights.
The Budget confirmed that up to £50,000 of shares allocated to an ‘employee shareholder’ will be exempt from CGT on disposal. However, it is only intended that up to £2,000 of shares will be exempt from income tax and NIC when they are allocated to the employee. This is an attractive relief on £2,000 of shares, but that may not be enough to persuade employees to give up their rights; while receiving a larger amount of shares will trigger an immediate tax charge without the cash to pay it.
These rules are intended to take effect for shares received on the adoption of ‘employee shareholder’ status on or after 1 September 2013. It remains to be seen how many employers will wish to offer the facility, or how many employees will wish to take advantage of it. Later on Budget day, the House of Lords voted against the proposal by a large majority.
At present, cheap or interest-free loans provided by an employer to an employee will create a tax charge if the amount is over £5,000 and the rate of interest is below 4%. The threshold will increase to £10,000 from April 2014. Although this was referred to in the speech as enabling larger ‘season ticket loans’, there appears to be no restriction on the purpose of a loan that will qualify for the exemption.
Real Time Information penalties
The Budget included an announcement of new rules introducing penalties for failing to comply with an employer’s obligations under the new PAYE ‘Real Time Information’ system that will apply to most employers from April 2013. We are told that the penalties will be ‘fair, proportionate and effective.’ For all those employers who are about to have to operate RTI, they remain a worrying threat. A new system of late filing and late payment penalties will only apply from April 2014, but it appears that penalties for inaccurate returns may be introduced by the Finance Act 2013.
It was announced in the Autumn Statement that the limits on tax-advantaged pension reliefs will be lowered further on 6 April 2014, after being reduced to £50,000 on 6 April 2011. The cap on annual contributions will fall again to £40,000. It has been confirmed that anyone who has paid less than the current limit in the three years before the change will be able to use the shortfall below £50,000 (not £40,000) to justify higher contributions in 2014/15.
The limit on the value of a tax-advantaged pension fund will fall from £1.5m to £1.25m for those taking benefits from 6 April 2014. Anyone with a larger fund taking benefits after that date will suffer an income tax charge on the excess at 55%. People adversely affected by this reduction – for example, already having pension rights valued at more than £1.25m but not wishing to take benefits before April 2014 – can apply for ‘protection’ which will lessen the impact of the change.
Someone who takes their pension benefits may buy an annuity, or instead take ‘drawdown’ – keeping their own fund identifiable and receiving some or all of the income arising. The maximum amount of drawdown income has been fixed at 100% of the annuity that could have been purchased with the fund. This will now be increased to 120%, apparently to take effect from 26 March 2013. This should increase the flexibility available to people drawing their pension benefits.