OTS review of employee benefits and expenses - second report

29 January 2014

A set of recommendations on how to simplify and streamline the complex system for reporting and taxing employee benefits and expenses has been set out in a report published today by the Office of Tax Simplification (OTS).

The report, which is looking to simplify benefits and expenses for four million employees and 300,000 employers, sets out a number of ways to make the reporting of expenses and benefits easier for both employee and employer. The report includes over 20 proposals to simplify the process, such as:

Processing benefits through the payroll system, rather than having to submit a P11D (the form used to submit an employee benefit) directly to HMRC – this will reduce the burden on employers and make the reporting more accurate;

  • Extending the PAYE Settlement Agreement (PSA) process to allow employers to deduct all tax due on benefits and expenses. Currently only certain expenses can be paid this way;
  • A de-minimis limit for trivial expenses – anything under £50, the OTS suggests, will not need to be taxed;
  • Clearer rules on the definitions of workplaces, ensuring employees only have one permanent place of work which is where they spend most of their time.

The OTS also sets out two areas for longer term study:

  • Moving National Insurance Contributions (NICs) and income tax closer together, including harmonising definitions and modernising NIC calculations;
  • A fundamental policy review as to what is and what isn’t a taxable benefit, taking into account today’s working practices.

John Whiting, Tax Director of the Office of Tax Simplification, said:

“We have listened to those that use the system – employers, agents and HM Revenue and Customs staff – and there is a lot of scope to simplify and streamline the current system. We can get some real simplification wins with some sensible changes to what counts as a benefit and how it is taxed, together with some modernising of the rules around travel and subsistence.

“We believe the recommendations we have made better reflects today’s working practices. Our quick wins will help, but the bigger work will begin to fundamentally change the way benefits and expenses are reported, making it easier for everyone. There is a big target here: the 4.5 million P11Ds completed annually, which we think could be reduced by 90 per cent or more.”

The report builds on an interim OTS report published last summer which set out a series of quick wins. These included: streamlining the cycle to work scheme; aligning tax and NIC treatment of mileage rates over 45p; changes to HMRC forms; and, publishing a list of items that automatically qualify for a ‘dispensation’ (meaning no benefit will arise for employees).

The Policy team will be reviewing the ‘91 page' report and will provide a summary on the detail shortly.

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