Benefits in Kind – Is Change Coming?

In the 2014 Budget, the Chancellor announced that the government would launch various consultations including one on employee benefits in kind and expenses, in response to the recommendations of the Office of Tax Simplification (“OTS”).

The Areas for Consultation

The consultation process opened on the 18 June 2014, and covers the following areas:

• The abolition of the £8,500 threshold

At present individuals deemed to be lower paid are subject to a different benefits in kind regime than those earning more than £8,500. The government believes that this threshold adds unnecessary complexity to the tax system and is consulting on who would be affected and how to mitigate the effects of abolition on vulnerable groups of employees. In essence, abolition of the £8,500 threshold will mean all employees will be liable to tax on their bills and reportable on a P11D rather than a P9D. It will also mean that employers will be due Class 1A NIC on these benefit amounts, resulting in additional costs to the company.

• Introducing a statutory exemption for trivial benefits in kind

The government believes that a clear and simple statutory exemption will make administering such benefits substantially easier for employers and is consulting on the design of such an exemption. Currently, there is no statutory definition of a trivial benefits in kind, but HM Revenue & Customs (“HMRC”) will accept items such as a bouquet of flowers on the birth of a child, or a box of chocolates at Christmas as trivial. The effect of a statutory exemption for trivial benefits will mean that these items can be taken as exempt without relying on HMRC discretion.

• Replacing the current system of dispensations for reporting non-taxable expenses with an exemption for expenses paid or reimbursed by employers

The government believes that an exemption would be simpler, more transparent, consistent and easier to use for employers compared to the current system. This consultation will cover the design features of such an exemption and its administration. Only those expenses which are genuine business expenses are incurred wholly and exclusively for the purpose of their employment would be covered under this exemption. Reimbursement of an employer’s personal expenses would continue to be reportable to HMRC.

• Introducing a system of voluntary payrolling for benefits in kind

The government believes that payrolling benefits in kind instead of submitting forms P11D can offer substantial administrative savings for some employers and wishes to create a system that will enable employers to do so if they wish. The government will consult on the design and scope of a payrolling model and is also interested to hear from employers who are already payrolling benefits on an informal basis.

Review of the system of travel and subsistence expenses

The OTS report also identified a number of issues with the tax treatment of travel and subsistence expenses which are a cause of error, misunderstanding, and concern for employers. The government feels that these problems are symptomatic of more fundamental issues in the tax rules on travel and subsistence expenses, and intends to launch a longer term review of these rules alongside the consultations on expenses and benefits.

If you have any questions on how this may affect your business or your employees, or would like us to assist you with a consultation response then please contact Charlotte Stewart (charlotte.stewart@aab.co.uk) or Steven Fraser (steven.fraser@aab.co.uk) or your usual Anderson Anderson & Brown LLP advisor.