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LITRG welcomes proposed reforms to reduce administrative burdens for employers, but stresses that HMRC need to explore the knock-on effects for claimants of tax credits, Universal Credit and welfare benefits.

Introduction

HMRC issued four consultation documents in June 2014 proposing the following changes to the system for employee benefits and expenses:

• Abolish the £8,500 earnings threshold for benefits in kind, which requires employers to report under two different tax regimes;
• Create a legal definition of a ‘trivial’ benefit in kind which would not be taxable;
• Replace the current set-up where an employer paying expenses to an employee has to report that to HMRC or apply for a ‘dispensation’ excusing them from doing so, with a more straightforward exemption for qualifying expenses, which would allow employers to determine for themselves whether an expense payment is taxable or not;
• Enable employers to choose to collect tax on benefits in kind and expenses through the payroll throughout the year, rather than just at the end of the tax year.

LITRG comments on the proposed reforms

This is a useful package of reforms designed by the Office of Tax Simplification to make life easier for employers. However, it will need to be carefully managed to ensure it does not have unintended negative consequences, especially for those on tax credits and welfare benefits.

One single regime – welcomed provided there is an exemption for vulnerable groups

Moving to one single regime for the taxation of benefits and expenses, regardless of whether an employee’s earnings in a particular employment exceed the current ‘£8,500 threshold’, would not only be a step towards simplification, it would also remove an element of unfairness from the current system. The abolition will have an adverse effect on a number of specific vulnerable groups, though. In particular, care and support (‘accidental’) employers and their carers have been identified as groups for whom it is essential that there is protection in the form of a specific exemption.

Voluntary payrolling – welcomed provided employee confusion is avoided

Voluntary payrolling clearly presents an opportunity for simplification for employers who wish to adopt it. Nevertheless, this measure does create the potential for greater employee confusion. LITRG recommends the introduction of a statutory requirement for employers to clearly notify employees of the benefits in kind they have received, itemising their value and indicating whether or not they have been payrolled.

Statutory definition of ‘trivial’ benefits – welcomed

LITRG supports the proposal to put in statute a definition of ‘trivial’ benefits in kind to be exempted from tax. Replacing the expenses dispensation regime with an exemption for expenses paid or reimbursed by employers should also benefit both HMRC and employers.

Conclusion – HMRC must explore the potential impact and issue clearer guidance

In respect of all the proposals, it is crucial that HMRC explore fully the potential impact of the changes on claimants of tax credits, Universal Credit and means-tested benefits. For voluntary payrolling in particular, LITRG suggests a working group is established as soon as possible for this purpose. HMRC must also produce much clearer guidance for employers and employees than has previously been available.

Useful links

More information on the employee benefits and expenses regime
The full LITRG responses