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Navigating the expenses tax minefield

THE TAX RULES underpinning employee expenses in the UK constitute a complex minefield that has not been updated since the 1990s. Central to this problem is the piecemeal fashion in which the system has been put together over the past 65 years. Coupled with the disconnect between income tax, National Insurance Contributions (NIC), taxation of employed and self-employed individuals.

The Office of Tax Simplification (OTS) was established in 2010 to investigate ways to streamline our complex tax system, including expenses. These rules are being reviewed by the OTS to determine whether they are still ‘appropriate and efficient’ in today’s working world, with a view to presenting its findings before the end of the year.

The OTS is questioning whether it is really necessary to categorise a restaurant bill as ‘staff entertaining’, ‘business entertaining’ or just ‘subsistence’ when it comes to end of year VAT, or is it just an extra piece of information to provide and process?

In its interim report, ‘Review of Employee Benefits’, the OTS outlined its ‘big picture’ areas of focus and has proposed a number of ‘quick wins’ to defuse much of this tax minefield.

P11D pileup

A key priority is would be to tackle the complex and frequently misunderstood ‘P11D’ form. This statutory form is required by HMRC from employers, detailing all the cash equivalents of expenses they have provided during the tax year to employees earning more than £8,500 per annum. This could be anything from parking tickets to first class flights. Unbelievably, the cost to employers of filling out this form last year was £160m. To reduce and ultimately eliminate this cost, the OTS is looking to streamline the process, something it feels Real Time

Information (RTI) could help achieve. This would avoid the painful end of the year return by instead calculating tax per month.

Another big area of focus is the dispensations for non-taxable expenses that are solely for the purpose of running the business, which currently have to be applied for through HMRC, which can be slow and bureaucratic. For this, the OTS will explore the practicalities of automatically applying dispensations in relation to standard business expenses, supported by a self-certification process conducted by the employer.

One of the most exciting aspects of this review however, is that it’s actively encouraging businesses to get involved in shaping future legislation. The UK tax system is unique in that it’s willing to take suggestions on board and make improvements.

The government wants to collect the correct amount of tax, but it needs help to do so. That’s why I’ll be taking part in the OTS consultation as it speeds towards its final report later this year. We have the opportunity to help build a better taxation system – particularly in relation to employee expenses – this interim report is just the first step.

Matt Lewis is compliance director at Concur

 

Related reading

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tax dictionary
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