The government is to consult on four tax simplifications in response to the Office for Tax Simplification’s (OTS) review of employee benefits and expenses, according to Chancellor George Osborne’s 2014 Budget.
These include abolishing the £8,500 threshold, the voluntary payrolling of benefits, a trivial benefits exemption and a general exemption for non-taxable expenses.
The government also intends to review the rules underlying the tax treatment of travel expenses, and will call for evidence on remuneration practices to inform any future reforms.
As previously announced in the Budget 2013, the government will introduce nine OTS recommendations to simplify the taxation of employment-related securities.
But following consultation, it has decided to delay the introduction of new rules for employment-related securities held by internationally mobile employees until April 2015 when all employment-related securities will be subject to these rules.
Employment-related securities include shares, options and futures.
Budget 2014: Chancellor introduces a number of adaptations to business expense and benefits processes
· Proposal for the reporting of only expenses that should be taxed on the employee
· Plans to put benefits and expenses through payroll
· Government consulting on introduction of a tax exemption for small benefits
· Proposed removal of the £8,500 earnings threshold that distinguishes between “lower” and “higher” paid employees taxing benefits in kind
The chancellor announced today that he is keen to take further the Office of Tax Simplification’s recommendations to simplify the treatment and reporting of employer expenses and benefits.
Mark Groom, tax partner at Deloitte, welcomed the changes introduced. He said: “We think these are very practical ways to streamline expense and benefit processes for all employers. They will simplify reporting processes and help to ensure greater consistency of treatment between tax payers.”
Of the first proposal, to simplify the current expense reporting process1 for employers, Groom said: “Although the proposal is a welcome simplification, it won’t prevent employers from getting it wrong. They will still have to differentiate between expenses payments that can be reimbursed or paid tax free, from those which are taxable. Getting it wrong will continue to be expensive, as it is now, and HMRC will need to provide clear guidance to help employers falling foul of a false sense of security.”
In response to the Chancellor’s proposal to put taxable benefits and expenses through the payroll instead of reporting them after the tax year on a P11D2, Groom commented: “We support this initiative provided it gives employers flexibility to choose whether or not to payroll benefits and which benefits can be included. Overall this could be a step in the right direction for simplification, but benefits in kind are not currently subject to employee’s NIC. If payrolling meant that a new employee’s NIC charge was levied on benefits, the initiative would be less attractive. Lower paid employees could be disproportionately impacted.
Speaking of the exemption of tax on small benefits3, Groom continued: “A new formal exemption for trivial benefits will eliminate an apparent inconsistent treatment of different benefits provided by different employers. Employers and HMRC will also save time and expense by not having to enter into individual agreements to ignore specific benefits.
But Groom also recommended: “The new limit on trivial benefits should be linked to CPI; it would be too easy for an exemption such as this to become outdated and too small to be useful. “
Finally, in reaction to the Chancellor’s proposal for the removal of the £8,500 earnings threshold that distinguishes between “lower” and “higher” paid employees taxing benefits in kind, Groom stated: “This is an obvious simplification to the tax code. With the exception of certain part time workers and those working for charitable organisations for example, few employees benefit from the threshold today. With the personal allowance now at £10,000, the threshold has become less relevant and is ignored by many employers as administratively cumbersome.
“While businesses may welcome this simplification, a few lower paid employees could end up worse off where benefits they are currently provided become taxable as a result of removing the threshold. As most benefits do not currently need to be reported for this population, it is difficult to assess the extent to which they would lose out.”
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