There was good news for employers this week as HMRC set out its plans to simplify the taxation of employee benefits and exemptions. The proposals, which should be in place from April next year, are summarised below.
- The abolition of the £8,500 threshold for the taxation of benefits in kind (BIKs).
At first sight, this looks like a backward step. At present, employees who earn less than £8,500 are not taxed on BIKs provided by their employer; if you remove the threshold then those benefits will be taxable. However, the recent increases in the personal allowance (which now stands at £10,000) should mean that no tax is due. Removing what is now a largely pointless threshold will simplify the reporting of benefits and expenses for employers, meaning that only one return (form P11D) will be required for all employees with BIKs.
- The introduction of an exemption for trivial benefits.
Under the proposals,employers will be able to make small one-off non-cash gifts to employees (for example, a bottle of wine to reward a job well done or a bouquet of flowers to mark a special occasion) without having to worry about the tax consequences.
- The introduction of an exemption for paid or reimbursed expenses.
Under the rules currently in force, an employer who pays or reimburses expenses incurred by an employee in the course of the employee's duties must report those
expenses to HMRC. The employee must then separately claim tax relief in respect
of those expenses. This situation can be avoided if the employer applies for and is granted a dispensation by HMRC. However, not all employers do this and many of those that do fail to update the dispensation when circumstances change. This is not a good situation and HMRC's proposed solution - to replace the current dispensation system with an exemption for qualifying expenses - should make things a lot simpler for employers and employees.
- The voluntary payrolling of BIKs and expenses.
Under these proposals, the employer would have the option of reporting certain BIKs and expenses through the payroll rather than on the end of year form P11D. This has two advantages. Firstly, it will reduce the admin burden for employers. Secondly, it will reduce the risk of insufficient tax being collected through PAYE, making it less likely that employees will receive a surprise tax demand after the end of the tax year.
And it doesn't end there. HMRC will also consider changes to the taxation of travel and subsistence expenses, rules which it recognises are "a cause of error, misunderstanding and concern for employers". Now if HMRC can sort that mess out that will be good news indeed.