Report calls for employee benefits shake-up

The complex system for reporting and taxing employee benefits and expenses is ripe for a complete overhaul, the Office of Tax Simplification (OTS) has concluded.

Publishing an interim report on 8 August, the OTS said it now planned to focus on four core areas in the coming months – HM Revenue & Customs’ (HMRC) administration of the system, including the P11D form, travel and subsistence,  accommodation and termination payments.

It makes 43 suggestions for quick simplifications, including streamlining the cycle to work scheme, aligning tax and national insurance treatment of mileage rates over 45p, changes to HMRC forms and publishing a list of items that automatically qualify for a dispensation, meaning that no benefit arises for employees.

The report also identifies issues for further investigation, including paying tax on benefits through the PAYE system rather than waiting for the end of the year to file a form P11D and the difference in treatment between those earning more than £8,500 and those earning less than that figure.

The review by the tax simplification team – which is looking to simplify benefits and expenses for four million employees and 300,000 employers – is at its halfway stage. The OTS has so far gathered feedback from hundreds of people at more than 50 events around the country to find out the issues with the current system.

John Whiting, tax director of the OTS, said: “It is clear that the current system for reporting expenses and benefits is simply not working well for employers or employees and also, in many cases, HMRC.

“Time and again, people have told us that the rules around travel and subsistence, accommodation or HMRC admin, are causing them problems and costing them time.

“One of our key objectives is making sure the system reflects today’s working environment: evidence suggests that it is outdated in a number of areas. There are some big questions we need to examine, but in the meantime we have also identified some small quick wins which we think would help.

“We are now looking to develop workable ideas that will make things easier for everyone with the aim of significantly reducing the 4.5 million P11Ds completed annually. We will be putting those proposals forward in our final report to the Chancellor before the next Budget.”

The OTS remains open to views from anybody on the issue, and these can be submitted at:

If you require guidance on employee benefits and expenses then Milsted Langdon can help. For further information, please contact us.

Link: HMRC guidance on company benefits

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