Following on from this year’s Budget announcements of four measures aimed at simplifying the administration of employee benefits and expenses, HMRC have recently published four consultation documents with the intention of introducing legislation in next year’s Finance Bill.
For those earning £8,500 or more per annum, or company directors, an employer must report taxable benefits on form P11D.
The current limit of £8,500 has not kept pace with inflation and has remained unchanged since 1979. Consequently, many lower paid employees fall into the benefits regime which is contrary to the original intention of taxing benefits-in-kind on the higher paid.
As recommended by the Office of Tax Simplification (OTS), the Government would like to abolish the £8,500 threshold which would have the effect of all employees being liable to tax on benefits received and employers having to pay additional Class 1A NIC.
One of the objectives of the consultation will be to identify and protect vulnerable groups that will be affected by these proposals, e.g. charity workers, care workers etc.
Borne out of the OTS’s suggestion, the Government intends to introduce a statutory exemption for benefits-in-kind that are trivial in nature, e.g. small gifts such as a bouquet of flowers given to an employee to celebrate a personal event or a box of chocolates at Christmas.
Employers would no longer have to report such benefits and would neither have to pay Class 1A NIC on these items.
To be able to introduce a new statutory exemption it will be necessary to define ‘trivial’ in legislation, which will be considered by the consultation along with whether the exemption should be based on an annual cost or on a specific number of benefits received in a year.
Expenses that are paid to an employee in the course of business and which do not attract a tax or NIC charge have to be reported on form P11D unless the employer has applied for a dispensation.
Adopting another OTS proposal, the Government will remove the need to apply for dispensations. This will be replaced by a system whereby the employer would need to determine whether the expenses they pay are subject to tax relief or not. Provided they are satisfied that an expense qualifies for full tax relief then they will be permitted to reimburse it by virtue of an automatic exemption.
More OTS brainstorming that the Government like is the ability of employers to choose whether or not they wish to account for tax on benefits through their payroll rather than reporting them on
All consultations close on 9th September.