Press release

Tax rules for employee benefits and expenses under review

The complex system for reporting and taxing employee benefits and expenses is ripe for a complete overhaul, an interim report concludes.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

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The complex system for reporting and taxing employee benefits and expenses is ripe for a complete overhaul, an interim report published today by the Office of Tax Simplification (OTS) concludes.

The report identifies some ‘big picture’ issues for further study such as ‘payrolling’ of benefits, abolishing the £8,500 ‘higher paid’ threshold, and smoothing the differences between tax and national insurance rules. The OTS proposes to focus on four core areas in the coming months: HMRC’s administration of the system including the P11D form; travel and subsistence; accommodation; and termination payments.

Alongside this, the report makes 43 suggestions for quick simplifications. These include streamlining the cycle to work scheme, aligning tax and NIC treatment of mileage rates over 45p, changes to the HMRC forms and publishing a list of items that automatically qualify for a ‘dispensation’ (meaning no benefit will arise for employees).

The review by the tax simplification team – which is looking to simplify benefits and expenses for 4 million employees and 300,000 employers – is at the halfway stage, and the OTS has gathered feedback from hundreds of people at over 50 events around the country to find out the issues with the current system.

John Whiting, Tax Director of the Office of Tax Simplification said:

It is clear that the current system for reporting expenses and benefits is simply not working well for employers or employees and also, in many cases, HMRC. Time and again – through our workshops and in submissions – people have told us that the rules around travel and subsistence, accommodation or HMRC admin, are causing them problems and costing them time.

One of our key objectives is making sure the system reflects today’s working environment: evidence suggests that it is outdated in a number of areas. There are some big questions we need to examine, but in the meantime we have also identified some small quick wins which we think would help.

We are now looking to develop workable ideas that will make things easier for everyone with the aim of significantly reducing the 4.5 million P11Ds completed annually. We will be putting those proposals forward in our final report to the Chancellor before the next Budget.

Final details of the next stage of the review will be agreed with Treasury Ministers over the summer and final recommendations will be reported ahead of Budget 2014. The OTS remains open to views from anybody, which can be submitted through the mailbox: ots-employee.benefits@ots.gsi.gov.uk

Notes to Editors

  1. The independent Office of Tax Simplification was established on 20 July 2010 to carry out reviews in order to provide expert advice to the Chancellor on options to improve and simplify the UK’s tax system.

  2. The OTS team is led by Chairman Rt Hon Michael Jack, and Tax Director John Whiting and has a staff drawn from HM Treasury, HM Revenue & Customs and secondees from the private sector. Details and biographies are available on the OTS website.

  3. OTS started its work in September 2010 and initially took forward two reviews: tax reliefs and the first stage of small business taxation (which focused on the IR35 review). Since then, the OTS has issued further reports on the review of small business, pensioner taxation and employee share schemes; it is currently carrying out reviews of employee expenses and benefits taxation and partnership taxation. More on the OTS reviews can be found here.

  4. Please send general thoughts and comments on the OTS expense and benefits review to: ots-employee.benefits@ots.gsi.gov.uk.

Issued by Office of Tax Simplification Press Office

Press enquiries only please contact:

Andrew Bennett
OTS Press Officer
Phone: 020 7270 6190 / 07917 598392

Published 8 August 2013