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Taxation of expenses – the government calls for evidence

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At Spring Budget 2017 (point 3.7), the government said that it recognised employers chose to remunerate their employees in a number of different ways. However, the tax system in regards to these different types of remuneration was inconsistent and needed to be made “fairer and more coherent”. This included looking at the taxation of benefits in kind and employee expenses.

 

20 March 2017 should have marked the launch of three consultations:

 

  1. Taxation of benefits in kind – this was to be about the exemptions and valuation methodology for the income tax and employer NICs treatment of benefits in kind in general. The aim was to understand how they are used and whether there were ways in which “their use in the tax system can be made fairer and more consistent”. This never came about.

 

  1. Accommodation benefits – this was to consist of proposals to bring the tax treatment of employer-provided accommodation and board and lodgings up to date. Specifically, Spring Budget 2017 said that the proposals would include the situations where accommodation should be exempt from a tax charge and consider support for taxpayers during any transitional period. This never came about either.

 

  1. Employee expenses – this was to be in the form of a call for evidence so that the government could “better understand” the way in which reliefs are used. This was issued on 20 March and the deadline for responses has been extended to 10 July 2017 as a result of the decision to call a general election in June.

 

Given that we have an extended deadline, it is worth looking at the contents of this call for evidence.

 

The purpose

 

Between 2009-10 and 2014-15, the use of tax relief claims have increased by 25% – here we are looking at the increased use of reliefs such as professional fees and subscriptions to professional bodies and mileage allowance up to the Approved Mileage Allowance Payment (AMAP) rates, all of which are perfectly legitimate. While the call for evidence says that current reliefs ‘cost’ the exchequer £800m (in lost revenue), HMRC/government says there are no plans to remove the concept of tax relief. Merely, the call seeks to understand how and where they are used, whether they are fit for 21st century working practices and how much these are likely to ‘cost’ in the future.

 

To me, clearly, there is an intention that reliefs will be limited at some time in the future. The government simply cannot afford for the current relief system to carry on and, in fairness, the system may be outdated and not fit for the future.

 

The evidence

 

In an attempt to ‘understand’, the call is for evidence in the following three sections:

 

  1. Current employer practices on employee expenses
  2. Current tax rules on employee expenses
  3. The future of employee expenses

 

The call is keen to gather as much evidence as possible from as many different employers across all sectors and nations that make up the United Kingdom. To be honest, it is in our interest to provide this evidence so that legitimate use of these reliefs can be maintained. If the use of tax reliefs cannot be demonstrated, it is likely that they will not be maintained. If and when they are abolished or modified, the government will, quite understandably, say that this was done on the basis of the fact that employers could not demonstrate that they were being used.

 

Section 1

 

This section has nine questions, all about current employer practices and the types of expenses that an employer pays or reimburses. It asks about employer practices and policies and the supporting evidence that employees are expected to provide. Also, it asks whether employers are aware if their employees are making claims for tax relief to HMRC (where the employer does not reimburse or pay for the expense).

 

Further, it looks at the types of expense, whether they vary by industry sector and asks whether expenses reimbursement has increased in the last five to ten years.

 

This is all about the government understanding what is going on in organisations. This is not to say there is anything wrong with what employers are doing. Therefore, this evidence-gathering is understandable – because expenses are often reimbursed free of tax without the need for declaration, HMRC does not have access to this information.

 

Section 2

 

This section has six questions and is all about the current expenses tax rules and their administration. It asks whether the tax rules reflect modern working practices and whether there are any reliefs that are not available that should be available. Further, it asks how tax reliefs are claimed – i.e. are they given at the point that the employer pays or reimburses the employee or does the employee claim them directly from HMRC?

 

Perhaps the most pertinent question is the last one in this section (question 15) which asks how the current tax rules could be made simpler and easier to administer for both employers and employees. To me, it is not always about the tax rules themselves; it is the guidance itself that needs to be made simpler and explained better on government websites. A lot of non-compliance is just the result of the way that the rules are communicated and not always the complexity about the tax rules themselves.

 

Plus, the whole ‘taxation of employee expenses call’ only mentions the word National Insurance once, yet the social security legislation interaction with the tax system is vital to consider and understand.

 

Section 3

 

This section has only two questions and concerns the future of employee expenses, i.e. what expenses and reliefs respondents expect to be available in the future (though there is no definition of what ‘future’ means, so are we looking at the next five to ten years?).

 

I think that the call is, perhaps, distorted in that it spends too much time looking at the past and present and not enough about the future. Maybe this is an indication that there is not much future left! I believe, though, that the call could have been weighted better if this section included the questions from section 2 on whether the relief system takes into account modern working practices.

 

The deadline for responses

 

As stated above, the original June deadline has been extended to 10 July 2017 to take into account the civil service downtime in the lead up to the general election. There are two way in which responses to the 17 questions in the call can be submitted to HMRC:

 

  1. e-mail to employeebenefitsandexpenses@hmtreasury.gsi.gov.uk

 

  1. Hard copy to:

Personal Tax Team

HM Treasury

1 Horse Guards Road

London

SW1A 2HQ

I agree that it is important to follow the call’s advice which says:

 

“‘When responding please say if you are a business, consultancy, individual or representative body. Please provide demographics of your organisation; in the case of representative bodies, please provide information on the number and nature of people you represent.”

 

In short, HMRC/government need as many people to respond from as many different organisation and sectors as possible. Remember that, even though the call is about understanding how tax (and NICs) reliefs are used by employers and employees, the government has always been quite clear that the use of reliefs is costing it a lot of money in lost tax and NICs revenue.

 

If we do not respond, we only have ourselves to blame when tax relief modifications are made at a later date and we don’t agree with them!

Ian Holloway
Posted by Ian Holloway
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