OTS publishes recommendations on benefits tax

The Office of Tax Simplification (OTS) has put forward recommendations on simplifying and streamlining the system for reporting and taxing employee benefits and expenses.

The report, which builds on an interim report published last year that set out a series of nine quick wins, includes 20 proposals to simplify the process for both employers and the employee.

Its recommendations include:

  • Processing benefits through payroll rather than having to submit a P11D directly to HM Revenue and Customs (HMRC), which will reduce the burden on employers and make reporting more accurate.
  • Extending the pay-as-you-earn settlement agreement process to allow employers to deduct all tax due on benefits and expenses. Currently, only certain expenses can be paid this way.
  • A de-minimis limit for trivial expenses. The OTS suggests anything under £50 will not need to be taxed.
  • Clearer rules on the definitions of workplaces, ensuring employees only have one permanent place of work which is where they spend most of their time.

The OTS has also set out two areas for longer study:

  • Moving national insurance contributions and income tax closer together
  • A policy review as to what is and what is not a taxable benefit.

John Whiting, tax director of the Office of Tax Simplification, said: “We can get some real simplification wins with some sensible changes to what counts as a benefit and how it is taxed, together with some modernising of the rules around travel and subsistence. 

“We believe the recommendations we have made better reflects today’s working practices.

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Matthew Hunnybun, head of employment tax at KPMG, added: “It is clear that the review of employee benefits and expenses by the OTS has involved extensive consultation with employers and their representatives to identify how legislation can be updated to reflect modern working practices

“It is, of course, difficult to balance the competing objectives of HMRC and employers, therefore many of the recommendations will require further consultation before they can be implemented.”