OTS calls for abolition of employee benefit threshold
The £8,500 salary threshold that determines the taxable benefits received by an employee should be abolished, the Office of Tax Simplification has recommended
THE SALARY THRESHOLD to determine whether certain tax benefits apply to lower paid employees should be abolished, the Office of Tax Simplification has said.
The office’s report on tax reliefs, released today, said that this leads to unnecessary complexities, with employers having to issue different forms to employees depending on their salary. Businesses are also charged different values on benefits – the report uses the example of the original cost of a second hand TV compared with the lower market value – depending on the salary of the employee.
Currently, employees earning under £8,500 a year are only subject to taxes on certain benefits such as vouchers, living accommodation and benefits that are convertible to cash. This threshold has been unchanged for more than 30 years, and the report said that this equates to almost £34,000 today – below the minimum wage. However, this does apply to employers with many part time workers.
The report said there was anecdotal evidence that some companies treated all employees as being above the threshold to save on administrative costs, even when there were higher tax costs.
“The obvious simplification is to abolish the £8,500 limit altogether,” the report said. “That would bring a consistent treatment of benefits to all employees. When this has been considered in the past, such a move has been resisted on the grounds that it would penalise some low paid employees. With the personal allowance nearing £8,500, and scheduled to reach £10,000 before long, surely that is an argument to tackle this outdated limit now.”
John Whiting, who headed the review team, told Accountancy Age that raising the threshold would be “tricky for the government, and in this day and age, we should have a rule that if you have a benefit from an employer, you are taxed on it”.