Category Archives: Employee benefits and expenses

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 visit to Preston

Preston1Last week John Whiting, Jeremy Sherwood and Jay Patel from the OTS visited the University of Central Lancashire (UCLAN).  There were two main reasons for our visit.  We wanted to talk to UCLAN’s accountancy students about the Employee Benefits and Expenses review, and look at some of the research they have done in this area.  Secondly, we conducted a workshop with local accountants, payroll professionals, and academics that work either at the university or in Preston.Preston2

We arrived early on Thursday morning.  The visit began with a presentation to over fifty students.  This included discussing some of the main recommendations, and areas to explore further.  For instance, the question ‘What should actually be classed as a benefit?’  Or what would be the impact of payrolling of benefits?  Or how relevant are Flat Rate Expenses in 2013?

Students had previously been made aware of our interim report and had prepared poster presentations to share with the OTS as part of their course.  This led to the presentation transforming into a lively discussion.  For instance, students pointed out that payrolling would have implications for student loan repayments – if this leads to benefits being treated as earnings.  Some argued that many employees didn’t claim Flat Rate Expenses (FREs) because they were not aware the relief existed (and HMRC’s guidance was not easy to find).  Others drew on their own experience of working part time in the care sector – for which they incurred costs such as washing uniform or late night taxies.  After the discussion, students took the lead by talking through their impressive poster presentations.  Some had focused on comparing the UK system with other countries.  Others had focused on analysing specific aspects of the system (such as FREs).

In the afternoon, the aforementioned workshop was held.  Views largely echoed what had been said during other OTS stakeholder workshops.  For instance, the need to clarify the rules pertaining to travel.

Thanks to David Massey from UCLAN for organising the visit – the trip provided valuable insight for our review.  Do you have anything to say about the OTS Employee Benefits and Expenses Review?  Please feel free to comment below, or to email us at ots@ots.gsi.gov.uk.

Go anywhere and meet anyone…

Motorway lights

The title of this post has become the unofficial OTS motto. In the past we have been as far west as Toronto (see previous post) – Belfast in person – as far North as Aberdeen, South to Exeter, East to Norwich and most places in between. It is now that time of year again and we are looking forward to getting out and about to hear the views of businesses, individual taxpayers, advisers and HMRC alike.

Our review of employee benefits and expenses is now in full swing – we have a team of secondees in place and are starting to plan meetings with interested parties across the UK. This is (hopefully) where you come in.

If you have an interest in the review and would like to feed input into it please contact us at the following email: ots-employee.benefits@ots.gsi.gov.uk We welcome any comments you can make or we will be happy to travel to meet you – especially a local group of businesses or other interested parties –  or welcome you to our offices in central London.

Please note that we only have a small team and whilst we will try to get around as many groups as possible we can’t commit to meet everyone.

A secondee’s experience

IMG_0414 (427x640)The OTS is looking to recruit experienced tax professionals on short-term secondments for its review into employee benefits and expenses. Further details of the role can be found on the vacancies page of our website:

http://www.hm-treasury.gov.uk/ots_vacancies.htm

If you would like to offer input to the employee benefits and expenses review, either in person or via email/telephone, please email the OTS at OTS-Employee.Benefits@ots.gsi.gov.uk

To give a flavour of what it is like to work for the OTS one of our secondees, Sarah Anderson, kindly blogged on her experiences. Over to Sarah:

In July 2011, I rather unthinkingly applied for a position as a secondee at the Office of Tax Simplification. I’d not heard of the OTS at that point but they were looking for people with experience with share plans, particularly with private companies, and it sounded interesting. In addition, the idea of simplifying even a tiny part of the tax code sounded like an excellent idea!

Eighteen months on and I can honestly say that the unthinking application was one of the best things I’ve ever done. For starters, there’s the undoubted kudos of swanning into the Treasury buildings like you belong there and the thrill of bumping into the big guns in the canteen. But even if you’re not as shallow as I am, the experience is one that I’d recommend wholeheartedly.

One of the most enjoyable parts of my 18 months’ secondment has undoubtedly been the opportunity to work alongside the leaders in my industry – particularly the chance to look at life from the perspective of HMRC and Treasury officials. I have always had respect for their experience and expertise; now I have had a greater insight into challenges they face on a daily basis that respect has increased enormously. I hope that one of the positive outcomes of the work of the OTS generally will be to increase trust and understanding between the private sector and HMRC – in the majority of cases, I really believe that our views and objectives are more closely aligned than perhaps we realise.

The experience has sometimes been challenging from a technical perspective. When the OTS produces a report, every single aspect of it is put under the spotlight by various parties: committee members with specialist tax knowledge, HMRC teams with (sadly, too much) experience of tax avoidance opportunities and the broader tax implications, Treasury officials looking at the hidden costs of proposed changes…and, of course, the civil servants always with an eye to the political angle. From the vague, “lightbulb” idea, right through to the precise wording (is it a “charge” or a “penalty”? Does the word “arrangement” have negative connotations?), every point is tested, questioned and argued with individuals who are absolutely the leaders in their field. Sometimes, you lose the arguments. That can, frankly, be terrifying – but like Nietzsche said (or Kelly Clarkson sang, take your pick), “What doesn’t kill you makes you stronger”!

The experience has been frustrating at times, downright infuriating at others, and sometimes the demands can really impinge on your day job. On a bad day, I think that we could, and should, have been braver, making more radical in our suggestions on employee share schemes. But I do believe we have made at least some improvements to the tax advantaged share schemes, and I hope our recommendations for unapproved plans will be accepted and remove some of the existing complexities for companies and HMRC alike. 

The reason I chose to work in this area is because I was given the chance to own shares in my employing company, and saw the difference it could make. So I am also really proud to have been involved an exercise that publicises the concept of employee share ownership. And – sad though it sounds – I am really excited when I see improvements to the share schemes legislation and I can say (to anyone who cares to listen): “I did that!”

Sarah Anderson
OTS Secondee on employee share schemes