Being provided with accommodation by your employer sounds like a nice ‘perk’. But why is it that two people doing the same job can find one is taxed on the benefit but the other is exempt? How can a low paid sheltered housing warden not receive exempt accommodation? How can four employees who live in four identical properties end up with significantly different values for their taxable benefit?
If you’re unlucky enough to lose your job, at least you can be cushioned by the first £30,000 of any payoff being tax free. Except that in many cases that exemption doesn’t apply – so why do some employees benefit from the £30,000 income tax exemption but others do not? Is it just down to good advice…how can employers get it right more easily and more often?
Today we have published our third report on the area of employee benefits and expenses (EBE) to tackle these concerns.
The report focuses on these two major and sensitive issues, accommodation benefits and termination payments. But it also covers some of the more minor issues that were set out in Chapter 8 of our interim report, and includes an update on the Quick Wins identified in the interim report. We’ve made a number of sensible and workable proposals that we believe the Treasury and HMRC can take forward in wider consultations. These are summarised below, but to fully understand why and how we’ve reached this stage, and the details of what we’re proposing, please refer to our full report.
With regards to accommodation, we recommend that the most basic accommodation is taken out of the tax charge entirely, and that we should reform the existing exemption tests with a definition based on:
1. Whether the employee is required to live in the accommodation to enable him/ her to protect, buildings, people or assets.
2. Whether the employee is regularly required to work outside normal working hours.
3. Whether he/ she is required to live in the accommodation as a result of regulatory requirements.
We also recommend that all accommodation is taxed on the basis of open market rental value, and that an index is applied to the value for say 5 years or (preferably) the valuation is only required every, say, 5 years.
With regards to termination payments, instead of the complexity surrounding the £30,000 threshold, such as when it is applicable and when it isn’t, we think the simplest way forward is for income tax relief to be only available in circumstances where the employee qualifies for a statutory redundancy payment. Under this new relief, we propose that the level of the exemption would be a multiple of the statutory redundancy payment that the relevant individual is entitled to (or alternatively, a flat amount). All payments linked to the termination payment received by the relevant individual (including his/ her statutory redundancy payment) would be aggregated and then the income tax exemption would be applied against the value of these. We also propose a government review of the existing exemptions, reliefs and reductions for termination payments, in order to establish in each case whether they should be retained. Moreover, we ask the Government to look at whether there should be a reform to the NICs treatment, so that the treatment of income tax and NICs are better aligned.
These changes will replace clunky, out-dated, complex, burdensome and often unfair rules, with rules that are more attuned to meet the needs of the modern day business environment. Ministers will respond to the report in due course, possibly at the Autumn Statement 2014, but why not have a look yourself and leave a comment.