Tax rules discourage efficiency

Obstacles to deductions on employees’ expenses deter staff from making sensible decisions on spending their company’s money or improving their skills, according to a report published last week by the Institute of Directors.

‘The Taxation of Employees and the Self-Employed’ claims many of the current tax rules governing employees are discouraging efficient business.

Richard Baron, the IoD’s taxation executive and report author, said tax rules had not adapted to the new ‘small office, home office’, flexible working environment.

He offered the example that a broader rule for ‘expenditure on performing your job better’ would encompass spending such as an employee buying a home computer or enrolling on a personal training course.

The report also says modern practices which can benefit the economy, such as working from home, are discouraged by old-fashioned tax rules. Baron said the most radical approach would ‘regard each employee as running his or her own business of supplying services to an employer.’ He added the new capital gains tax rules do not give the right incentives to employee share schemes.