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Employment tax issues for charities and independent schools: what lies ahead?

18th July 2016

Following much change within the Government including the appointment of a new Chancellor of the Exchequer, we consider here what employment tax issues lie ahead for charities and independent schools over the coming months.

Apprenticeship Levy

The Apprenticeship Levy is due to come into effect from April 2017 and this much is known currently:

  • It will apply to all employers
  • It will be charged at a rate of 0.5% in respect of employer payroll costs
  • It will apply to all employers (including connected parties) where their payroll costs are more the £3m
  • An allowance of £15,000 is available to off-set against the Apprenticeship Levy
  • The Government will be providing an additional 10% ‘top-up’ to an employer’s Apprenticeship Levy fund
  • Initially any unused Apprenticeship Levy will be re-distributed after 18 months.

Many charities and independent schools do not have apprenticeship schemes in place currently.

As of now, the guidance does not make any provision in respect of volunteer training costs and this is something we feel would be of benefit to the sector.  Further guidance is still awaited and was expected in June.

Personal Service Companies and the Public Sector

A consultation paper “Off-payroll working in the public sector: reform of the intermediaries legislation” was published recently by the Government, together with draft legislation concerning obligations which will be placed upon public sector organisations who engage the services of personal service, or IR35 companies.

The proposed legislation will require the engager is treated as a public sector body within the definitions set out within the Freedom of Information Act 2000 which includes a number of charities and grant funded organisations. Under the proposed new legislation, the engager will be required to:

  • Withhold income tax and National Insurance on the payments made to the personal service company
  • The tax and National Insurance will be paid across to HMRC as part of the monthly real time payroll reporting
  • Relief will be given in respect of any VAT charged by the personal service company and a general 5% deduction for general overheads
  • The consultation is looking at the viability of the 5% deduction.

HMRC are due to release a review tool to help engagers determine whether the new rules should apply to them.

The proposed changes will require a further layer of administration.  We do not know whether the additional amounts being paid through the payroll will be excluded from the Apprenticeship Levy calculation.

Living accommodation

Following HMRC’s “call for evidence” earlier this year we are awaiting further consultation in respect of the provision of living accommodation.  We understand that any new legislation is due to apply from 6 April 2018, leaving a limited period for consultation and for charities and independent schools to consider the impact these changes will bring.

Further comment will be provided on all the matters above as soon as further information is available.  If you should have any questions, please speak with Nick Bustin, Director of Employment Tax on 020 7969 5578 or your usual haysmacintyre contact.