BENEFITS IN KIND/TAXABLE BENEFITS
Synopsis: The Office of Tax Simplification has published a second review of the tax treatment of employee benefits and expenses.
Date posted: Tuesday, February 04, 2014
The Office of Tax Simplification (OTS) has published a second report on the tax treatment of employee benefits and expenses. In its interim report which was published in August 2013, it set out 43 ‘quick wins’ – minor changes which could be implemented quickly yet would still make a big difference.
The second stage of the review conducted by the OTS focuses on identifying and developing solutions, especially in relation to the employee benefits and expenses system – an area which it believes requires change.
Travel to and from work
The rules relating to travel to and from work is one of the main areas which the OTS feels needs to be reviewed – the current rules are complicated to understand and more and more employees find themselves attending multiple offices or sites for work. In light of this, the OTS has recommended that a clearer definition of a permanent workplace should be given in the legislation. Ideally, it says, an employee should have only one permanent workplace for tax purposes. However, the Treasury is likely to object to this because it would allow many more employees to claim tax relief for travel to their non-permanent workplaces. So instead it suggests putting a 24 month limit on the deductibility of travel and subsistence expenses associated with a temporary assignment.
Other areas covered in the report by the OTS include:
Broadening PAYE Settlement Agreements
A PAYE Settlement Agreement (PSA) essentially allows an employer to make one annual payment to cover all the income tax and NICs due on employees’ taxable expenses or benefits which are minor or irregular. While these can prove to be expensive research has shown that they are helpful and consideration ought to be given to using them for all benefits and expenses.
An exemption for qualifying business expenses
Business expenses which are not taxable still have to be reported to HMRC unless the employer applies for a P11D dispensation. Further, the employee has to make a corresponding claim for tax relief. In practice two forms need to be completed to achieve the desired outcome, even though the benefit is not taxable. The OTS recommends that an exemption is added to the legislation for qualifying business expenses paid for or reimbursed by an employer so that employers would no longer need to apply for a P11D dispensation.
Abolition of the £8,500 threshold
Those who earn below £8,500 are not taxable on certain benefits in kind and their benefits and expenses must be submitted on a P9D form – whereas for the vast majority of other employees a P11D form is used thereby resulting in two different tax regimes. The OTS has suggested that this threshold, which has remained at the same level since 1979, should be abolished with some mitigating steps to help those who may be affected.
Trivial benefits and other administrative burdens
Research has shown that businesses feel that the definition of trivial is unclear and that various restrictions lead to inconsistent practice. On this basis the OTS recommends redefining a short, easy to understand ‘principles based’ definition of a trivial benefit, incorporating a per item cap (e.g. £50).
Simplifying NICs – what more can be done?
The OTS feel it necessary to further explore the case for applying Class 1 NICs to all employee remuneration (whether cash or benefits in kind) and align the underlying definitions of income and expenses. This means aligning the bases on which income tax and NICs are calculated, such that the basis for charging NICs should replicate as far as possible that for income tax.
Simplifying the tax treatment of employee expenses and benefits will no doubt be welcomed especially where this gives rise to a simpler administration process which can otherwise be onerous.
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