Company-provided fuel
As foreshadowed in the Chancellor's autumn statement, it has been confirmed that from April 2003 the car fuel scale charge will be replaced by a tariff based on a vehicle's CO2 emissions, ranging from 15% to 35%, in line with the car scale charge itself. Somewhat disappointingly, however, the proposed tariff itself has not yet been announced.

One welcome and long overdue change when the new rules come in is that employees who opt out of company-provided fuel during the tax year will only pay tax on the fuel scale charge up to that date. Until 5 April 2003, employees who opt out of company-provided fuel (without changing their car) remain liable to the full year's scale charge, unless the entire cost of their private fuel for the part tax year is made good. The Budget Press Release does however warn that there will be anti-avoidance provisions to discourage opting out of and then back into company fuel during the same tax year. Presumably this is aimed at preventing acceptance of a fuel scale charge for periods of exceptional private mileage (e.g. taking the car on a European holiday) and then paying for fuel privately at other times.

National Insurance Contributions

The Chancellor announced an increase in the rates of National Insurance Contributions (NICs), which will be introduced from April 2003. Employers, employees and the self-employed will pay an additional 1% on all earnings above the NICs threshold of £89 per week. This is in addition to the existing NIC rates below the upper earnings/profits limit for employees and the self-employed. These upper limits will go up from £30,420 for the current year to £30,940 from April 2003.

Rates and threasholds

Rates and thresholds 2002-03 2003-04 Primary/Secondary threshold £89 per week £89 per week Monthly/annual equivalents £385/£4,615 £385/£4,615 Annual upper earnings/profits limit £30,420 £30,940 Weekly/monthly equivalent £585/£2,535 £595/2,578 Employees' primary class 1 rate on earnings between primary threshold and upper earnings limit
10% 11% Employees' primary class 1 rate on earnings above upper earnings limit N/A 1% Employers' secondary class 1 rate on earnings above secondary threshold 11.8% 12.8% Lower profits limit (for self-employed Class 4 NIC) £4,615 £4,615 Class 4 rate on profits between lower and upper profits limit 7% 8%
Class 4 rate on profits above upper profits limit N/A 1%

No Government press releases have been issued to demonstrate the effect of these changes but, as the following examples show, the effect will be to increase very considerably the NICs payable by higher earners from next year:

Employee's NICs

Annual Earnings 2002-03 2003-04 Increase  

£
£
£

30,000 2,538.50 2,792.35 253.85 40,000 2,580.50 2,986.35 405.85 50,000 2,580.50 3,086.35 505.85 60,000 2,580.50 3,186.35 605.85

It will clearly be advantageous, for businesses and higher earners alike, to pay any bonuses earned in the current tax year before 5 April 2003, rather than after. If amounts cannot be finally determined by then, an interim payment will still offer a 2% overall NIC saving.

Beyond this, and bearing in mind the announcement of a nil rate of corporation tax on the first £10,000 of profits, this would appear to open up a "window of opportunity" for the current financial year, for owner-managed businesses at least. If profits are reduced by bonuses down to the £10,000 nil corporation tax level, £1,000 of corporation tax can be saved without any greater NIC costs on the bonuses than currently exist.

Taking into account tax factors alone, the generally accepted view up to now has been that the dividend route is better than paying a bonus where the company is liable at the lower (or lower marginal) rates of corporation tax. This assumption will almost certainly be no longer reliable and you should consult us as regards any planning of this nature.

Electronic filing of PAYE returns
As foreshadowed in the Chancellor's autumn statement, and following the recommendations of the Carter Report, all businesses will be compelled to file PAYE returns electronically over the next few years. The timetable set out is as follows:

· From tax year 2004-05 - Employers with 250 or more employees
· From tax year 2005-06 - Employers with 50 or more employees
· From tax year 2009-10 - All employers

Businesses with 50 or fewer employees will also be offered incentives to switch to e-filing before 2009. Those switching for the tax year 2004-05 will receive £250, tapering to £75 by 2008-09.