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Taxation of employee benefits – in need of a complete overhaul?

The Office of Tax Simplification (OTS) has reviewed the taxation of employee benefits and, as a result, has recommended the government undertake a radical overhaul of employee benefits tax and administration rules.

The OTS interim report highlighted four key areas that is believes should be the focus of significant action:

  • When is a benefit really a benefit?
  • Can the administration of the employee benefits and expenses system be substantially modernised, streamlined and simplified?
  • Many of the exemptions and allowances in the system are outdated.
  • If a wholesale policy review is not practical, some discrete areas need reviewing, such as termination payments and overseas travel.

The OTS also identified 42 “quick wins” that it believed could lead to simplification without significant underlying rule changes, and hopefully without much controversy.  These include a full evaluation of the cycle to work scheme’s success and look into ways to streamline its administration, the ability for employers to sort out straightforward employee tax issues with HMRC if the employee gives consent, changes to the HMRC forms and publishing a list of items that automatically qualify for a ‘dispensation’ (meaning no benefit will arise for employees).

The report also includes an extensive breakdown of other issues that affect benefits administration, these include the operation of salary sacrifice arrangements, private health cover and gift or discount vouchers.

The OTS stated that the current system for reporting expenses and benefits is simply not working well for employers or employees and also, in many cases, not for HMRC.

The OTS is 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, and will be putting proposal to the Chancellor.

 

 

Date: 12th September, 2013
Author: Cathy Corns

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