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OTS employee benefits review: Taxation 'ripe for overhaul'

Office of Tax Simplification calls for radical overhaul of employee benefits tax and administration rules

THE OFFICE OF TAX SIMPLIFICATION has recommended the government should undertake a radical overhaul of employee benefits tax and administration rules.

The tax body published an interim report as part of its review of employee benefits and expenses – saying the benefits tax and administration system was “ripe for a complete overhaul” with the P11D process being a major concern, Financial Director’s sister title WSB reports.

The OTS highlighted four key areas that it believes should be the focus of significant action, along with 43 smaller “quick wins”.

However, the OTS noted: “In an ideal world though we would recommend a full policy review of the whole benefits and expenses system to re-establish some general principles and ensure these are in line with current employment practices and government policies.

“We recognise that this raises significant resource issues for both employers and HMRC in dealing with any new system,” it added.

In addition to the review of HMRC’s administration process three other core areas were highlighted as major projects. These were: travel and subsistence; accommodation; and termination payments.

The OTS also identified 43 “quick wins” that it believed would lead to “simplification without significant underlying rule changes, and hopefully without much controversy”.

These included a full evaluation of the cycle to work scheme’s success and look for ways to streamline its administration, the ability for employers to sort out straightforward employee tax issues with HMRC if the employee gives consent, and 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 further detail on the cycle to work scheme, the operation of salary sacrifice arrangements, bring your own device to work, private health cover and gift or discount vouchers.

Office of Tax Simplification tax director John Whiting said: “It is clear that the current system for reporting expenses and benefits is simply not working well for employers or employees and also, in many cases, HMRC.

“Time and again – through our workshops and in submissions – people have told us that the rules around travel and subsistence, accommodation or HMRC admin, are causing them problems and costing them time.

“One of our key objectives is making sure the system reflects today’s working environment: evidence suggests that it is outdated in a number of areas. There are some big questions we need to examine, but in the meantime we have also identified some small quick wins which we think would help.

“We are 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 those proposals forward in our final report to the Chancellor before the next Budget,” he added.

Final details of the next stage of the review will be agreed with HM Treasury ministers over the summer and final recommendations will be reported ahead of next year’s Budget.

The full interim report can be viewed here

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