Monthly Archives: January 2014

Employee Benefits and Expenses Review: second report

Have you ever really considered whether the tax treatment of employee benefits and expenses is sensible and efficient? Or what, if any, improvements are needed?

Our Employee Benefits and Expenses Review gets to the bottom of these questions. In August last year we published our interim report, which identified the problem areas. Recently, we have published our second report – setting out our recommendations on HMRC administration, travel and subsistence, and ‘big picture’ ideas (longer term, structural reforms). We also plan to publish further recommendations concerning accommodation benefits and termination payments – but we are still scoping this final stage of the review.

Our second report looks at the extent to which the current system is fit for purpose, that is, whether businesses can settle their liabilities (or apply qualifying exemptions) quickly, efficiently and with certainty. We believe the current system doesn’t yet pass that criteria, and have suggested more than twenty recommendations to improve matters, but the key messages are discussed below.

There was huge demand from employers to be able to payroll benefits, i.e. put them through the monthly payroll along with salaries and wages and deduct tax appropriately (rather than reporting them on P11D forms every year). So we are recommending the introduction of a legislative framework that will permit employers to do this. We think this could scrap the need for around 4 million forms to be sent to HMRC each year.

The rules relating to travel and subsistence do work in most cases for most employees. However, we have made proposals to address three main pressure points – temporary workplaces, people with more than one permanent workplace, and people who work from home. We are also recommending a new statutory definition of “subsistence”. Finally, we think HMRC should explore the case for a more radical change, based on allowing tax relief for all travel expenses that are reimbursed by the employer.

At the moment most benefits are only taxable for people earning more than £8,500 – but we think this threshold should be abolished. This figure has stayed the same since 1979 and it requires employers to complete a separate process for lower paid employees. Abolishing it is something that our interim report concluded was an obvious move. Our second report concentrates on who would be affected and how to limit any adverse effects.

We’d be interested in hearing your views about the report – you can send your views to:
OTS-Employee.Benefits@ots.gsi.gov.uk

OTS Publishes report on taxation of partnerships

Partnerships have been often referred to as one of the simplest ways for two people to go into business together. So, the OTS found itself asking, why had we received so many comments on partnerships in previous reviews?

After 5 months of hard work, and receiving comments and views from nearly 1,000 people, the OTS has now published an interim report detailing the difficulties faced by partnerships- which make up 10% of UK business. The report covers the whole range of taxes, from income tax through to capital gains tax, SDLT, and VAT.

Fundamentally, the report highlights a feeling among business partnerships of being treated as ‘the poor relation’ by HMRC- this is partly due to the ‘one-size fits all’ nature of partnerships, which results in a very small amount of tax legislation being required to cope with the taxation of businesses of all shapes, sizes, and functions. This can lead to uncertainty and perceived inconsistency in treatment between businesses.

The OTS has identified a number of quick fixes that can be made now to make things simpler for partnerships (such as providing free software for partnerships to file online), as well as several longer-term areas, which require further research but could create significant simplification for partnerships. These include allowing personal expenses to be claimed by partners, or even abolishing the need for the partnership return entirely for some businesses.

Overall, the report suggests that HMRC needs to develop a more strategic approach with regards to the tax treatment of partnerships which properly acknowledges their place in UK business and internationally.

Many thanks to Roger Jones and Martin Gunson for taking the time to assist with the project, including speaking to a large number of partnerships and representative organisations. Do you have anything to say about the partnerships review? Please feel free to comment below, or email us at ots-partnerships@ots.gsi.gov.uk.

John Whiting receives CIOT Council Award

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On Tuesday 14 January, John Whiting, Tax Director of the OTS received the Chartered Institute of Taxation (CIOT) coveted Council Award.

The award was given in recognition of John’s long service in the field of tax.  John was previously a tax partner at PriceWaterhouseCoopers for 25years, before becoming CIOT’s first Tax Policy Director in 2009.  As well as the enormous amount of work John currently does in running the OTS, in parallel he is also a non-executive director on the board of HM Revenue and Customs.

John was presented with the award at the CIOT’s annual presidential lunch at the Savoy Hotel in London.

The OTS team congratulates John on his award and is delighted to see his passion for improving the tax system being recognised by the CIOT.