Employee benefits tax recommendations may never be implemented

The Office of Tax Simplification (OTS) published an interim report last month 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, but employee benefits experts have questioned whether, and how, the proposals will be implemented.

Yvonne Gallagher, a partner and head of the employment and pensions group at Lawrence Graham, said she welcomed the OFT’s recommendations. “I thought they were an eminently sensible set of recommendations because [employment law] is unbelievably complex, particularly from a lawyer’s perspective.

“We tend not to see the grinding pain that goes into the P11D process, but I am not confident that these changes will be implemented by the government.”

Some of the recommendations in the OTS report included: a proposal for HMRC to encourage voluntary payrolling of benefits, instead of reporting benefits on P11D forms; to enable fleet operations to buy multi-year road fund licences; and that car fuel benefits should be based on what an employee puts into their tank, not how they pay.

The area about which OTS has received most comment is dealing with travel expenses and subsistence. This is an area that particularly highlights how the tax rules currently fail to reflect normal commercial behaviour. This is an area OTS recommends be given priority for further work in the next stage of the review.

In total, the OTS identified 43 possible quick wins in the tax treatment of benefits.

The report also detailed the OTS’s recommendations on salary sacrifice. Michael Jack, OTS chairman, said in the report that the body had heard about a considerable variety of salary sacrifice and flexible pay arrangements and that respondents thought the government was not clear about whether it supported salary sacrifice schemes.

“They seemed to endorse salary sacrifice in some areas, pension contributions and cycle schemes, but not in others,” he said. “Salary sacrifice schemes are often difficult to explain to employees because of P11D reporting. There are implications for universal credit and student loan repayments. Overall, we think there is, in many ways, a need for clear policy statements on this whole area.”

But Charles Cotton, performance and reward adviser at the Chartered Institute of Personnel and Development, who also welcomed the proposals, questioned how they would be implemented. “There’s no suggestion how these [proposals] could be introduced,” he said. “Also, we need some kind of framework to look at which [employers] should be focusing on first.”