In January of this year the Office of Tax Simplification published its ‘Review of employee benefits and expenses: second report’, which set out a way forward to improve the world of expenses and benefits and with travel and subsistence being one of the main areas.
Responding to that report, the government announced in the Budget that it would review the rules underlying the taxation of travel and subsistence expenses. Last week, the government told us that that review will be carried out in two stages. This will run alongside the consultations launched in June on expenses and benefits and the wider call for evidence on remuneration.
The OTS’s report made a number of recommendations as to how the tax treatment of travel and subsistence expenses could be simplified or improved. It also highlighted areas of the current regime which cause problems and misunderstanding for employers. As well as making a range of recommendations, the OTS proposed that the entire system of travel expenses be reviewed to take into account changing working patterns.
The government accepts that the travel and subsistence rules have failed to keep in step with the modern way of working in the 21st century, in particular the growth in the temporary labour market and the increased number of employees working from home. There are also concerns that some of the travel expenses rules are driving tax planning and abusive behaviour.
It is the government’s intention therefore to produce a new set of rules that will be fit for purpose and be simpler for both employees and employers to understand and use. Just like the current system, these new rules will not allow tax relief for private or ordinary commuting.
Coming up with the new rules will take time and because of this there will be no new legislation until after the term of the current government. Until then a consultation process will take place in two stages:
During this time the government will seek to improve its understanding of the commercial realities of travel and subsistence payments which will include issues such as:
Also, during this stage, the government will discuss the framework within which it will develop any new principles to the travel rules, in particular:
A report will then be made in the Autumn Statement in early December.
This stage will involve the establishing of a working group tasked with assisting in producing a new set of principles upon which the new travel and subsistence tax regime will be built upon. A report will then be made at Budget 2015.
Meanwhile, HMRC will by revising guidance on temporary workplace rules for projects carried out in phases, by the end of September 2014. This will be published in the Employment Income Manual.
Anyone having read HMRC booklet 490, ‘Employee Travel’, will appreciate the need for the regime to be overhauled and for it to be made more easily understood.