Simplifying Expenses and Benefits Update

OTS Publish Final Report

The Office of Tax Simplification (OTS) has published its third and final report on ‘Review of employee benefits’. Whilst the report focuses on two main areas, living accommodation benefits and termination payments, it does contain an update on other issues and ‘quick wins’ that the OTS discussed in their August 2013 interim report.

£8,500 Benefits Threshold

The earnings threshold for employees at which point expenses and benefits-in-kind become taxable is the subject of a current consultation.

Training

Currently, the rules surrounding training are confusing and perceived as unfair.

Work related training is not taxable if contracted by the employer or if paid for by the employee and reimbursed by the employer. However, if the employee meets the cost but is not reimbursed, then it is not tax deductible. This has led to the following questions being raised:

• Should there be a deduction for non-reimbursed costs?
• If so, in what circumstances? – maintenance of skills? Updating? Development in new areas?
• Should the exemption be extended to skills other than those strictly related to the job?
• What would be the cost of extending the exemption?
• Can the risk of abuse be managed?

The OTS believe that the whole area of training expenses needs to be reviewed and that extending the exemption, as well as simplifying the tax system, could have the added benefit of encouraging people to ‘up-skill’.

Quick Wins

The interim report recommended 43 changes that could be implemented quickly and would benefit businesses and individuals alike in the short term. By the end of January 2014, HMRC had effected 13 of those, including:

• Better guidance on what qualifies for subsistence expenses.
• Improved guidance on allowable expenses.
• Improved guidance and awareness on PAYE dispensations.

Another ‘win’ originally scheduled for 2017 has also been achieved.

HMRC currently have 10 ‘quick wins’ under consideration with a view to implementation by May 2015. Some of those are:

• Publishing a list of benefits-in-kind that are considered trivial and introducing a trivial benefits exemption.
• Revising and updating booklet 490, ‘Employee Travel’.
• Improving guidance and design of form P11D (reporting benefits-in-kind).

By April 2017 it is hoped that 9 more ‘quick wins’ can be achieved. Some of these include:

• Aligning tax and NIC treatment of mileage rates over 45p.
• HMRC should stop treating London as one workplace regardless of travel time. The OTS had been told that employers had received some unhelpful decisions from HMRC with regard to workplaces in London, with some being told that all of London (within the M25 perimeter) is one workplace even though two workplaces could be one-two hours apart yet still within the London conurbation.

The remaining 10 ‘quick wins’ will be taken forward by other routes.