National Insurance Contributions (NIC)
There is no change in the rates of NIC. For 2008/09 the upper earnings limit, above which employees continue to pay contributions of 1% on earnings, will be increased by £100 per week. This gives an annual figure of £40,040.
The upper profits limit for Class 4 national insurance for the self-employed will also be increased in 2008/09 to £40,040.
In 2009/10 the upper earnings and profits limits will be aligned with the point at which the higher rate of income tax becomes payable.
For many this increase in the contributions for employees and the self-employed removes the tax savings given by the reduction in basic rate of income tax.
Company cars and the fuel scale charge
Where a company car is provided for an employee's private use, a taxable benefit arises which is based on the list price of the car and its CO2 emissions. The percentages range from 15% to 35% for most cars. There are discounts currently available for environmentally friendly cars and from 6 April 2008 there will be:
a 2% discount for cars that have been manufactured to run on E85 fuel.
a new 10% company car tax band for non-electric cars emitting no more than 120gm/km of carbon dioxide. Environmentally friendly discounts do not apply to such cars but the diesel supplement does.
If free fuel is provided with a company car for private motoring then a fuel benefit tax charge arises based on the percentage used for the car benefit and a ‘multiplier', which is currently £14,400. For 2008/09 the figure will increase to £16,900.
The fuel scale charge multiplier has not changed since it was introduced in 2003. This 17% rise, combined with an increase in the car benefit percentages for 2008/09, means that many employees will see a substantial increase in their tax bills from next April.
Longer term the government is proposing:
the starting point for the company car benefit will be reduced by 5gm/km to 130gm/km in 2010/11
the incentive to drive fewer miles will be strengthened by increasing the fuel benefit charge at least in line with the Retail Prices Index from April 2009.
Tax free mileage allowances
The government has been consulting on changing the system and rates for tax free mileage allowances where an employee uses their own car for business purposes. It has been decided that the system will not change and the rates will be maintained at current levels. The current rates are:
- business mileage up to 10,000 miles – 40p
- business mileage above 10,000 miles – 25p.
Enterprise Management Incentive (EMI)
EMIs are tax and NIC advantaged share options available to small companies with gross assets not exceeding £30 million, to help them recruit and retain employees. Currently employees cannot hold qualifying EMI options, taking into account Company Share Option Plan options also granted to them, with a total market value of more than £100,000 at date of grant.
Regulations will be made to increase the individual employee limit on grants of EMI qualifying options from £100,000 to £120,000. The change to the individual EMI option grant limit will have effect in respect of options granted on or after 6 April 2008.
To ensure compliance with EU State Aid guidelines, legislation will be introduced in the Finance Bill to make two changes:
- EMIs will be limited to qualifying companies with fewer than 250 full time employees
- companies involved in shipbuilding, coal and steel production will no longer qualify for EMI.
Residence and domicile: changes for employment related securities
Employment related securities and securities options are shares and other securities, and options over such shares or securities, which are acquired by an employee by reason of their employment.
Employees who are not resident and not ordinarily resident in the UK at the time employment related securities or options are acquired are not within the scope of all of the charging provisions. Changes will be introduced in the Finance Bill to bring such employees within all the charging provisions so that their remuneration from employment related securities or options is subject to the same rules as other employees.
Where such employees are taxed on the remittance basis, the measure will provide apportionment of the employment related securities income to ensure that the proportion relating to overseas duties will only be subject to income tax when it is remitted to the UK.
A similar apportionment basis will be available to non-domiciled individuals where the relevant income relates to a foreign employment where the duties are performed wholly outside the UK.