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

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