Changes to the reporting and taxing of benefits and expenses for four million employees and 300,000 employers have moved a step closer.
The Chancellor announced a review of the principles and rules underlying the tax treatment of travel and subsistence expenses in the Budget.
It will consider how the tax treatment of these expenses can be simplified to best address the challenges of the changes to modern working and travel patterns.
The Government will also issue a call for evidence on remuneration and benefit provision after the Office of Tax Simplification (OTS) called for a fundamental review of Government policy (Fleet News, March 6).
The OTS wants the Government to consider whether it wants to tax cash or cash equivalents differently, whether the way a benefit is provided should determine how much tax is paid on it and what constitutes a benefit.
However, structural changes to the tax regime, which could include the application of Class 1 NICs to all employee remuneration, whether cash or benefits in kind, and the alignment of the underlying definitions of income and expenses for income tax and NICs, have been put on the back-burner.
The Government says that it conducted “detailed and extensive” work regarding the operational integration of income tax and NICs in 2011 and 2012, and it will wait until further progress around changes to PAYE are made before considering major reforms.
John Whiting, tax director at the OTS, welcomed the chancellor’s response to the recommendations in its recent Review of Employee Benefits and Expenses report.
He said: “It is pleasing that most of these are going to be taken forward.”
It is hoped that if the Government adopts some of the tax measures outlined in the OTS report, it could substantially reduce – perhaps by as much as 90% – the 4.4 million P11D forms completed annually.
The BVRLA has pledged to work with the Government to ensure that its attempts to simplify benefits and expenses do not penalise fleet operators and company car drivers.
The Government will consult on four simplifications: abolishing the £8,500 threshold, voluntary payrolling of benefits, a trivial benefits exemption and a general exemption for non-taxable expenses.
Meanwhile, its review of travel and subsistence will look at a range of measures suggested by the OTS, including the need for employers to retain receipts and rules around permanent and temporary workplaces.
Mike Moore, a tax director at Deloitte, described the current rules in relation to temporary workplaces as complex, but believes simplification could offer respite for fleets.
Using the construction industry as an example, there can be issues identifying how long an employee is going to be needed at a particular site. However, tax rules don’t allow for an extension to an assignment, meaning that a worker who was originally able to claim travel to and from the site, loses that right as soon as the intention changes.
Moore says: “That sort of scenario happens quite a lot in construction, which makes it really difficult for businesses with site-based workers to work out what is business and what is private travel.
“They might over-reimburse because they haven’t fallen within the rules and where a fuel card is involved, if they get it wrong, it’s not just the quantum of fuel they overpay, they also trigger the full fuel scale charge for the year.
“If the recommendations are taken through into legislation then it could potentially make the administration easier for any businesses that have employees working at other people’s premises for long periods of time.”
The Government has not indicated what the timescale will be for either the review or the call for evidence. However, it is expected to begin the process during this financial year so that some measures can be included in next year’s Budget.