Employee benefits in kind and expenses: an update
Updated 21 August 2014
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1. Introduction
In his 2014 Budget the Chancellor of the Exchequer announced that, in response to the recommendations of the Office of Tax Simplification (OTS), the government would launch a package of 4 related consultations on employee benefits in kind and expenses, alongside a longer term review of the tax treatment of travel and subsistence expenses, and a call for evidence on modern remuneration practices.
The government launched these 4 consultations and the call for evidence on 18 June 2014.
These measures are focused on reducing the administrative burdens relating to benefits in kind and expenses for employers, individuals and HMRC.
This guidance gives a summary of the consultations and the status of the consultations for stakeholders.
2. The package: consultations on HMRC administrative changes
On 18 June 2014, the government launched consultations on the technical design and implementation of 4 measures proposed by the Office of Tax Simplification (OTS). The measures are intended to simplify processes for both employers and HMRC in the area of employee benefits in kind and expenses.
These consultations closed on 9 September 2014. The government will respond to these consultations at the Autumn Statement 2014.
The 4 areas of consultation are:
- The abolition of the £8,500 threshold. The government believes that this threshold adds unnecessary complexity to the tax system and is consulting on who would be affected and how to mitigate the effects of abolition on vulnerable groups of employees.
- Introducing a statutory exemption for trivial benefits in kind. The government believes that a clear and simple statutory exemption will make administering such benefits substantially easier for employers. The government will therefore consult on the design of such an exemption.
- Replacing the current system of dispensations for reporting non-taxable expenses with an exemption for expenses paid or reimbursed by employers. The government believes that an exemption would be simpler, more transparent, consistent and easier to use for employers than the current system. This consultation will cover the design features of such an exemption and its administration.
- Introducing a system of voluntary payrolling for benefits in kind. The government believes that payrolling benefits in kind instead of submitting forms P11D can offer substantial administrative savings for some employers and wishes to create a system that will enable employers to do so if they wish. The government will consult on the design and scope of a payrolling model and is also interested to hear from employers who are already payrolling benefits on an informal basis.
3. Review of the system of travel and subsistence expenses
The OTS report also identified a number of issues with the tax treatment of travel and subsistence expenses which are a cause of error, misunderstanding, and concern for employers. The government feels that these problems are symptomatic of more fundamental issues in the tax rules on travel and subsistence expenses, and intends to launch a longer term review of these rules alongside the consultations on expenses and benefits.
The review of the travel and subsistence will aim to produce a new system that reflects working patterns in the 21st century. The government does not intend that any new system would provide tax relief for private travel or ordinary commuting. However the government is open to exploring different principles and methods for determining the circumstances when travel expenses should attract tax relief and will invite views on this in a structured way as part of the review.
The review will involve discussions between the government, employers, employees and representative bodies, with a particular focus on those industries where travel and subsistence payments are common.
The government formally launched this review on 31 July and are now considering the findings from Stage 1. If you have any questions relating to this review, please contact TravelandSubsistenceReview@HMTreasury.gsi.gov.uk
4. Call for evidence on remuneration
In addition to the above consultations and the review of travel and subsistence the government recognises both the complexities the OTS highlighted in their report, and the wider need to reform policy to reflect our 21st century workplace and labour market.
The government believes it cannot stand idle in the face of a modernising economy and will look at how remuneration practices are changing to ensure the tax system keeps pace. The government is therefore, alongside the consultations, undertaking a general call for evidence on modern remuneration practices to inform any future policy changes in this area. This call for evidence was launched on 18 June and closed on 9 September 2014.
5. Next steps
The 4 consultations on HMRC administrative changes and the call for evidence closed on 9 September 2014. The government intends to publish an update at the time of the Autumn Statement 2014.
If you wish to respond to the consultations on HMRC administrative changes or have questions relating to them, please contact employmentincome.policy@hmrc.gsi.gov.uk.
If you wish to respond to the call for evidence on remuneration or have questions relating to it, please contact remunerationpractices@hmtreasury.gsi.gov.uk.
If you have any other questions, please contact employeebenefitsandexpensesconsultations@hmtreasury.gsi.gov.uk.