Employee benefits and expenses – simplification must not come at the cost of fairness for vulnerable employees
The Low Incomes Tax Reform Group (LITRG) has welcomed proposed reforms to the employee benefits and expenses regime1, which should reduce administrative burdens for employers. Nevertheless, the tax campaigners have made a clear call for HMRC to ensure the knock-on effects for claimants of tax credits, Universal Credit and welfare benefits are fully explored, proposing the setting up of a working group for this purpose.
HMRC issued four consultation documents in June 2014 proposing the following changes to the system for employee benefits and expenses:
· Abolish the £8,500 earnings threshold for benefits in kind which requires employers to report under two different tax regimes;
· Create a legal definition of a ‘trivial’ benefit in kind which would not be taxable;
· Replace the current set-up where an employer paying expenses to an employee has to report that to HMRC or apply for a ‘dispensation’ excusing them from doing so, with a more straight forward exemption for qualifying expenses, which would allow employers to determine for themselves whether an expense payment is taxable or not;
· Enable employers to choose to collect tax on benefits in kind and expenses through the payroll throughout the year, rather than just at the end of the tax year
LITRG’s Chairman, Anthony Thomas, said:
“This is a useful package of reforms designed by the Office of Tax Simplification to make life easier for employers. But it will need to be carefully managed to ensure it does not have unintended negative consequences, especially for those on tax credits and welfare benefits.
“Moving to one single regime for the taxation of benefits and expenses, regardless of whether an employee’s earnings in a particular employment exceed the current ‘£8,500 threshold’, would not only be a step towards simplification, it would also remove an element of unfairness from the current system. The abolition will have an adverse effect on a number of specific vulnerable groups though. In particular, we have identified care and support (‘accidental’) employers and their carers as groups for whom it is essential that there is protection in the form of a specific exemption.
“Voluntary payrolling clearly presents an opportunity for simplification for employers who wish to adopt it. Nevertheless, this measure does create the potential for greater employee confusion. We recommend the introduction of a statutory requirement for employers to clearly notify employees of the benefits in kind they have received, itemising their value and indicating whether or not they have been payrolled.
“We support the proposal to put in statute a definition of ‘trivial’ benefits in kind to be exempted from tax. Replacing the expenses dispensation regime with an exemption for expenses paid or reimbursed by employers should also benefit both HMRC and employers.
“In respect of all the proposals, it is crucial that HMRC explore fully the potential impact of the changes on claimants of tax credits, Universal Credit and means-tested benefits. For voluntary payrolling in particular, we suggest a working group is established as soon as possible for this purpose. HMRC must also produce much clearer guidance for employers and employees than has previously been available.”
Notes to editors
1. The basic rule is that if you provide an employee with anything other than pay it may count as an expense or benefit. Common examples of expenses and benefits include company cars, health insurance, travel and entertainment expenses and childcare.
For more see here.
2. The full LITRG responses are available here.
3. The Low Incomes Tax Reform Group (LITRG)
LITRG is an initiative of the Chartered Institute of Taxation to give a voice to the unrepresented. Since 1998 LITRG has been working to improve the policy and processes of the tax, tax credits and associated welfare systems for the benefit of those on low incomes.
4. The Chartered Institute of Taxation (CIOT)
The CIOT is the leading professional body in the United Kingdom concerned solely with taxation. The CIOT is an educational charity, promoting education and study of the administration and practice of taxation. One of our key aims is to work for a better, more efficient, tax system for all affected by it – taxpayers, their advisers and the authorities. The CIOT’s work covers all aspects of taxation, including direct and indirect taxes and duties. Through our Low Incomes Tax Reform Group (LITRG), the CIOT has a particular focus on improving the tax system, including tax credits and benefits, for the unrepresented taxpayer.
The CIOT draws on our members’ experience in private practice, commerce and industry, government and academia to improve tax administration and propose and explain how tax policy objectives can most effectively be achieved. We also link to, and draw on, similar leading professional tax bodies in other countries. The CIOT’s comments and recommendations on tax issues are made in line with our charitable objectives: we are politically neutral in our work.
The CIOT’s 17,000 members have the practising title of ‘Chartered Tax Adviser’ and the designatory letters ‘CTA’, to represent the leading tax qualification.
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