John Whiting: Employee benefits tax system needs modernising

The Office of Tax Simplification (OTS) was set up to study areas of the tax system and make recommendations to the Chancellor on simplifying rules and procedures. Recently, we have spent a lot of time looking at employee benefits and expenses, and published a major report in January 2014.

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This is the product of talking to a lot of employers, advisers, individuals and front-line HM Revenue and Customs (HMRC)] staff about what they find difficult or time-consuming.

Our small team of private-sector secondees has particularly been looking for areas where the rules have not kept pace with changing working patterns.

Our recommendations included: the payrolling of benefits should be available to employers that wish to use it; pay-as-you-earn (PAYE) settlement agreements should be greatly widened in terms of what they can cover with no prior HMRC approval; the introduction of a set amount for trivial benefits, probably £50, below which there would be no tax liability; and the abolition of the £8,500 higher-paid [income tax] threshold.

On travel and subsistence, we recommended looking properly at a new system that basically exempts any costs covered by employers.

In the meantime, travel for the first 24 months of a temporary workplace should qualify in all cases; employees should have just one ‘permanent workplace’; and there should be better definitions around home working. 

In the long term, we also want real progress on bringing PAYE and NI contributions together, and argue for a major review so we get to a rule that says ‘no benefit = no tax’.

If ministers decide to take [the recommendations] forward, and there will be a consultation if they do, we think our ideas would make a real difference, modernising the system and cutting out a lot of wasteful work. 

As a target, maybe 40,000 annual P11Ds instead of 4.4 million? Meanwhile, we’re looking at accommodation benefits and termination payments. Comments welcome.

John Whiting is tax director at the Office for Tax Simplification (OTS)