Taxation of employee expenses: response to the call for evidence

01 December 2017

The Government has published its response to the call for evidence on the taxation of employee expenses.

The call for evidence was one component of the response to the Office for Tax Simplification (OTS) report on the income tax and NICs treatment of employee benefits and expenses which was published in 2014 and had 3 main objectives;

  • Establish if the rules or their administration could be clearer and simpler;
  • Establish whether tax rules on expenses were fit for purpose in the modern economy; and
  • Establish why the exchequer cost of tax relief on non-reimbursed expenses has increased in recent years.

The government response details a number of actions which will be taken;

1. Staff Training

Respondents identified the disparity in the treatment of expenses for staff training, particularly the fact that tax relief is available where an employee pays for the training cost but not if an employee meets the cost himself and is not reimbursed. 

There will be a consultation in 2018 on extending the scope of tax relief available for work-related training.

2. Benchmark Scale Rates

Tax legislation will be amended to reflect that employers need only be satisfied that the employee has engaged in qualifying travel to qualify for a benchmark scale rate for subsistence.  There will be no requirement to see a receipt.

We assume that this will require some amendment to the definition of making a payment or reimbursement in an “approved way” as detailed at section 289A ITEPA.

3. Administration and Guidance

Government will continue to work with external stakeholders to explore potential improvement to the guidance on employee expenses.

There are also a number of subjects which were raised by respondents which Government has no plan to take forward;

1) Travel and subsistence

There was suggestion that the existing legislation does not have due regard to modern working practices where employees work between several offices and also, that the rules are generally complicated.

2) AMAPs and MAR

Employers do not all pay the maximum rate available.  There is no advisory fuel rate for hybrid or electric cars.

3) Home Working

An increase in the number of home workers led to a call for more generous tax treatment.

4) Relocation

Calls for an increase in the £8000 tax free limit for relocation expenses and benefits paid by an employer.

5) Flat Rate Expenses

Some asked for current flat rate amounts to be increased or for flat rate expense for different occupations to be grouped. 

6) NICs Treatment of Expenses

The disparity which occurs when an employee claims tax relief for a non-reimbursed expense direct from HMRC and no NIC relief is allowed was raised.  Government response was that, although tax and NIC relief is allowed for reimbursed employee expenses, allowing NIC relief on non-reimbursed expenses could reduce or eliminate social security entitlements.  Also, the facts that NI are payable by both the employer and the employee and are calculated on a pay-period basis mean that administration of NIC relief would not work. 

7) The PAYE Settlement Agreement

Suggestion that the scope of the PAYE Settlement Agreement could be widened to permit employers to settle any tax liability on expenses using the PSA.

Aspire Comment

This response appears to demonstrate that any wholesale amendment to the world of employee expenses remains in the “too hard” pile.

Whilst the OTS report raised a number of thought provoking and more controversial suggestions, the outcome of this call for evidence means that there does not appear to be any likelihood of significant change to the treatment of employee expenses in the near future. Instead we will see one further consultation on staff training, general updating of guidance and new legislation relevant to benchmark scale rates. 

See our previous articles on employee expenses here;

30.03.17 – Consultation on the taxation of employee expenses – call for evidence

30.01.14 – OTS publish their review of employee benefits and expenses:  second report

22.08.13 – OTS interim report is published