Taxation of employee expenses call for evidence

21 August 2017

On 5th May 2017 HM Treasury and HM Revenue & Customs (HMRC) issued a call for evidence relating to the taxation of employee expenses. The deadline for submissions was 10th July 2017.

So why was a call for evidence made?

The Office of Tax Simplification (OTS) 2013 review highlighted the need for a ‘policy review’ of the expenses system to re-establish some general principles and ensure these were in line with current employment practices. 

The government has no plans to remove the relief on employee expenses.  However, given the size and importance of this part of the tax system, they do want to better understand how it is working in practice.

So what are the key issues?

The call for evidence asked 3 key questions:

  1. Can the current rules and administration be clearer and simpler?
  2. Are the tax rules for expenses fit for purpose in the modern economy?
  3. Why has the cost to the exchequer of tax relief for expenses which are not reimbursed increased?

So what is the answer?

As well as answering the 17 specific questions in the call for evidence MacIntyre Hudson also raised the following points:

The Legislation covering reliefs and allowances for expenses is generally acceptable.  There may be some areas where it needs tweaking to keep abreast of innovation and changes in working practices and technological advances i.e. mileage rates for all electric cars etc.  However, in general no wholesale changes are required.

  1. Removing of Dispensations from April 2016 may have been seen by Government and the OTS as an easement to business, but it has left a lot of businesses confused and uncertain as to whether what they are doing is correct or not.  This has led to increased input by advisors to assist and provide assurance to employers.
  2. The current HMRC guidance is useful, but not always easy to navigate if you don’t already know where to look! Improved navigation, search and simplification/change of terminology would improve the experience for employers.
  3. There are many reliefs that are useful, though possibly open to interpretation or complication.  One example relevant to expenses would be travel and subsistence which requires a c. 80 page guidance booklet (490) to explain how the reliefs and anti avoidance measures work.  This is one area that would benefit from clarification and simplification.
  4. In relation to the reported increase in the value and number of claims for relief it might be worth noting that. during the period from 2009/10 to 2014/15 there was a reduction in company car drivers of 20,000 (from 2008/9 to 2014/15 it was 60,000).  Many of these drivers will still travel on business and have taken cash allowance to procure their own car.  Employers tend to pay the Advisory Fuel Rates (“AFRs”) for business mileage undertaken by ‘cash allowance’ drivers in their own car and so the employees would claim tax relief on the difference between the AMAP rates and AFR rates.  This may explain some of the increase in the number and volume of claims.

The comments and responses enclosed are those of MHA MacIntyre Hudson, however they are drawn from experience of discussions with clients and the many years of experience of our in-house Employment Tax specialists.

What next?

HM Treasury and HMRC have received a number of responses, including acknowledging receipt of MacIntyre Hudson’s response.  We expect that these will be reviewed over the Summer months.

We do not expect any radical changes, but there may be some focus on business travel reliefs.

In the meantime it is business as usual. In the absence of P11D Dispensations focus on ensuring internal policies & procedures are clear and robust enough to support the correct reporting and non-reporting of expenses and benefits.  Maintaining internal compliance is, as always, essential to control costs, mitigate risks and avoid costly HMRC settlements.

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