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Changes to employee benefits

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There are several new provisions relating to the taxation of employee benefits that have come into effect as from April.

There are new provisions on employee benefit trusts. These are when the employer pays money into a trust for it then to pass to employees in the hope that this will avoid or reduce income tax and national insurance. HMRC has taken the view that such arrangements are not effective anyway. New legislation has been introduced to put the matter beyond doubt.

The tax-free limit for childcare vouchers is reduced for employees who start work from 6 April 2011. If an employee earns at the higher tax rate, the £55 tax-free limit is reduced to £28. For additional rate (50 per cent) taxpayers, the limit is reduced to £22. These reduced limits do not apply to employees who, before 6 April 2011, were employees, had a child and were receiving childcare vouchers.

The rules for national insurance holidays have now been enacted in National Insurance Contributions Act 2011. Early indications are that very few employers are bothering with it.

Class 1A national insurance contributions may be reclaimed for an overseas holiday home owned by a company controlled by directors. It is already possible to reclaim any income tax paid. 

The Office of Tax Simplification has recommended that the £8,500 P35 limit for benefits be abolished. This was established in 1979. Had it been indexed in line with inflation, it would now be £34,000. OTS recommends that every employee is given a tax-free benefit limit of £100 or £500 a year so that only significant benefits are taxed. The government has not said how it will respond to these changes, but does intend to abolish some old benefits, such as luncheon vouchers where the 15p a day tax-free limit is unchanged from 1948.