OTS Review of Expenses and Benefits

At the Autumn Statement of 2012, the Government indicated it was to ask the Office of Tax Simplification (OTS) to review ways in which the benefits and expenses taxation system and employee termination payments process could be simplified.

In April 2013, David Gauke MP, Exchequer Secretary to the Treasury, set out the terms of reference for the review, saying that the vision was to complete the work in three stages:

1. A fact-finding exercise aimed at identifying the main areas of complexity
2. A review of these specific areas with a view to developing recommendations for simplification
3. A study of other areas of the ITEPA Benefits Code, looking at areas for simplification and modernisation

From previous research into tax reliefs, the OTS had already identified that the topic of benefits and expenses highlight a number of complexities, not least the differing NICs and tax treatments, exemptions / exclusions and the ‘higher paid’ £8,500 threshold.  With over 150 pages of tax and NICs legislation, together with pages of HMRC guidance, a review, leading to simplification, could impact 4 million employees and 40,000 employers.  The Terms of Reference asked the review to consider:

• Existing practices in employee reward and whether tax rules have kept up-to-date with these
• The impact on employees and employers
• The impact and cost to the Exchequer
• Operational impact on HMRC and interactions with RTI
• International experience (especially that in Ireland)
• Interaction with other legislation
• Fairness, consistency with recognition of ant-avoidance measures

In August 2013, the OTS produced stage 1 of their project entitled ‘Review of Expenses and Benefits: Interim Report’.  This highlights areas of complexity, plus some of stage 2, looking at specific areas and making recommendations for simplification.

The report is a 155 page-long discussion and recommendation document that demonstrates the considerable research that has been undertaken in the months since the remit was published.  The OTS has engaged in over 50 meetings and seminars around the country plus has attended conferences and received written communication from a wide range of organisations.

The OTS identifies key points that emerged from their research:

• Whilst the benefits and expenses system is ‘ripe’ for a full review, such a review would raise significant issues for both the employer and HMRC
• Tax and NICs rules are not always aligned plus the same situation exists with the tax situation for employed and self-employed
• HMRC administration on expenses and benefits and the issue of tax codes is a major concern for employers
• Travel and subsistence rules have received most comments and the rules fail to reflect what actually happens in organisations
• Accommodation and termination payment rules are also significant problems
• 43 ‘quick wins’ have been identified as items that could be changed relatively quickly for positive effect.  It is interesting to note that 19 of these 43 relate to ‘HRMC Administration’

The OTS has looked at the topics which came up most frequently in their meetings and have prioritised four areas for further review:

1. HMRC administration, including the P11D process and PSAs
2. Travel and subsistence expenses
3. Accommodation benefits
4. Termination payments

Of these four, the OTS favour looking at HMRC administration and travel and subsistence payments first.  However, priority areas will have to be agreed with HM Treasury, with recommendations coming later in 2013 / early 2014, just in time for the Chancellor to take them into account, possibly, in the Budget Statement.

Comment

The Learn Centre was very pleased to be part of the OTS’s consultation exercise, representing the views of the payroll profession.  Indeed, this report is a good read in that there is evidence that a lot of work has been put into this data gathering exercise to ensure that it is fully reflective of what everyone is thinking – HMRC, taxpayers, employers and software providers.  Right Honourable Michael Jack, the OTS Chairman says that:

‘with so many people contributing to our work from all over the country we feel this ‘bottom up’ input gives a real practical authenticity to the project’

We are encouraged that the voluntary payrolling of benefits is recognised in the report, something the OTS has noted as a recurring theme in many of their discussions.  It is important to note the use of the word ‘voluntary’ and this optional way of reporting benefits and expenses was welcomed by many employers.  This is different from a previous lobby back in 2007/08 that recommended the payrolling of all benefits.  To give employers the choice of payrolling, taking away any compulsion, seems the way forward and we agree with the report that developments in software and the advent of RTI ‘make payrolling an obvious route to go’.  Of course, the issue of payrolling brings with it complications from a reporting and NICs perspective, all of which need to be fully explored.

We recommend that all professionals exposed to expenses and benefits give the report their time, as the OTS are keen to hear comments before embarking on the next stage of their review in mid-September.  Comments should be sent to ots-employee.benefits@ots.gsi.gov.uk.

In turn, The Learn Centre looks forward to representing the views of the payroll profession in future discussions with the OTS.

Further Information

• Gov.UK  – Review of Employee Benefits and Expenses: Interim Report
• Gov.UK  – Expenses and Benefits Review Terms of Reference