Recommendations published on benefits tax rules

The Office of Tax Simplification (OTS) has published an interim report as part of its review of the tax rules around employee benefits and expenses.

The overall aim of the review, which was announced in January 2013, is to look at opportunities for simplification.

The first stage of the review, which covers both legislative simplifications and improvements to HM Revenue and Customs’ (HMRC) administration, has been completed.

Recommendations from the OTS include:

  • HMRC should encourage voluntary payrolling of benefits, in place of reporting benefits on P11D forms.
  • Fleet operations should be allowed to buy multi-year road fund licences.
  • Car fuel benefits should be based on what an employee puts into their tank, not how they pay.
  • Reimbursement of car fuel where an employee contributes by 6 July should be allowed.
  • A proper evaluation of bikes-for-work schemes to look at ways to streamline its administration.
  • The minimum length of service for long-service awards should be brought down to five years.

The key points emerging from the first stage of the review include:

  • OTS recognises that the way the system has developed in a piecemeal fashion over the last 65 years raises significant resource issues for both employers and HMRC in dealing with any new system. In an ideal world, OTS would recommend a full policy review of the whole benefits and expenses system to re-establish some general principles and ensure these are in line with current employment practices and government policies.
  • Underlying much of the complexity are tensions and boundaries in the tax system, such as the differing income tax and national insurance contributions (NICs) rules and the differing rules for the taxation of employed and self-employed. OTS continues to maintain that these underlying structural issues cause significant problems within the tax system.
  • HMRC administration, including the form P11D process and the issuing of tax codes, is a major source of concern among employers. The process is resource-intensive both for employers and HMRC, and is often driven by complex and frequently misunderstood rules as to what should or should not be included. It should be a key priority for further work to identify what changes can be made to simplify the system.
  • The area about which OTS has received the most comment is dealing with travel expenses and subsistence. This is an area which particularly highlights how the tax rules now fail to reflect normal commercial behaviour. It is an area OTS would recommend as another priority for further work in the next stage of this review.
  • The rules dealing with accommodation for employees and termination payments give rise to significant problems in practice, even though they affect fewer people.
  • Through its initial work, OTS has identified 43 possible quick wins.

Michael Jack, chairman of the Office of Tax Simplification, said in the report: “We wanted to tackle the whole area of employee benefits and expenses because so many people were telling us how complicated it was. Small businesses in particular don’t have time to read the hundreds of pages of HMRC guidance.

“They tend to muddle through until they get a nasty surprise after a visit from the taxman. Big employers told us they spent huge amounts of wasted time keeping records of expenses and trivial benefits that were never going to be taxed or, in their view, shouldn’t be. As some put it, ‘benefits should mean benefits’.”