In its second report of ‘Review of employee benefits and expenses’ the OTS has made a number of recommendations for improving the UK’s PAYE system with the aim of substantially reducing the number of P11D forms that are completed. With the changes they propose the OTS believe 99% of P11D’s could be eliminated.
For the year ended 5th April 2013 HMRC figures show:
With this in mind the OTS’s overall objectives were:
Many employers have indicated to the OTS that they want to be able to process more benefits via monthly payroll rather than reporting these on form P11D. The first recommendation proposes a legislative framework to permit employers to have some/all benefits and expenses taxed via payroll on a voluntary basis.
A PSA allows an employer to pay the income tax and NIC on employees’ taxable expenses or benefits which are minor or irregular. The OTS recommend that the scope of PSA’s should be widened to permit employers to settle any tax liability on benefits and expenses.
To replace the PAYE dispensation process with a more modern, practical approach and including in legislation an exemption for qualifying business expenses paid or reimbursed by an employer. This would cover all routine business expenses that can be currently included in a PAYE dispensation.
This suggestion would however require HMRC increasing its support and guidance to employers, especially in the formative years of change.
Currently, an employer must complete a form P11D for all those earning £8,500 p.a and who are in receipt of benefits-in-kind. This threshold has remained unchanged since 1979! With the personal allowance set to rise to £10,000 in April 2014 there should be no reason for retaining this threshold and should therefore be abolished.
A short, easy to understand ‘principles based’ definition of a trivial benefit, incorporating a per item cap, e.g. £50, so as cut out superfluous P11D’s
In this area the OTS found that:
The OTS would therefore like to see a rule that says an employee can only have one permanent workplace, being the place where they spend the greatest part of their working time. If this should prove too expensive for the Exchequer however, then “permanent” and “temporary” workplace should be redefined by introducing a statutory percentage test, probably at 30%.
Where it is necessary to provide hotel accommodation or a company flat (or equivalent) for an employee who is working at a temporary workplace, then this should be included in a P11D dispensation.
One proposal is to explore further the case for applying Class 1 NIC to all employee remuneration, whether that be cash or benefits-in-kind.
Over to you HMRC!