On 1 December 2017, HMRC published the response to its “Taxation of employee expenses call for evidence", which closed on 10 July 2017.

The call for evidence highlighted that:

  • Tax relief claimed by employees for non-reimbursed expenses costs £800m a year
  • There was a 25% increase in such claims between 2009/10 and 2014/15. 
  • There appears to be an increase in the use of agents, who claim tax relief on behalf of employees in return for commission.

Its main objectives were to determine:

  • If the current rules or their administration can be made clearer and simpler.
  • Whether the tax rules for expenses are fit for purpose in the modern economy.
  • Why the tax relief claimed has increased so much.

Replies:

There were 53 written contributions, from various employers, accountants and professional bodies plus HMRC and the Treasury held 11 meetings with 30 stakeholders across the country.

The key messages were:

  • There is little appetite for significant reform: the rules are well established and understood by employers, and work
  • Engaging with the system is burdensome; many respondents thought having to keep receipts was onerous, particularly for smaller expense claims
  • Employees face challenges in understanding and engaging with the system; claiming relief for non-reimbursed expenses can be difficult to navigate
  • Broadly, the rules are still fit for purpose in the modern economy and reflect expense incurred by employees today: the principal area respondent thought had changed is travel, with more employees working from home or between multiple offices
  • There was no consensus on why the costs have increased. The most likely reasons were thought to be
    • Cost pressures have meant employers are reimbursing less expenses
    • Employees' awareness of the availability of relief is increasing

Government response:

Based on the evidence provided, the system is generally working as intended and is fit for the modern business world. As significant costs would be incurred by business in retooling their expenses processes in the event of a significant change in how these are dealt with.

Four measures were announced in the Autumn Budget 2017 as a result of the call for evidence:

  • HMRC will consult in 2018 on extending the scope of tax relief available to employees (and the self-employed) for Work-Related Training Costs.
  • From April 2019, employers will not need to check receipts when making payments to employees for subsistence using Benchmark Scale Rates.
  • From April 2019, the existing concessionary accommodation and subsistence Overseas Scale Rates will be placed on a statutory basis.
  • HMRC will work with external stakeholders to explore possible improvements to the guidance on employee expenses, particularly Travel and Subsistence.

It also particularly noted that while many respondents mentioned travel as an area that could be reformed or simplified, there was no consensus as to the direction any changes should take. Also, no new evidence or reason was provided to displace the view formed following the 2015/16 discussion paper on this subject, so no further action is being taken at this stage.

The response also specifically addressed (but no changes will be made to) Mileage Payments and Advisory Fuel Rates, Home Working Costs, Relocation Expenses and Flat Rate Expenses. Changes to the NIC treatment of non-reimbursed expenses and PAYE Settlement Agreements will also not be changed as these could “affect employees’ entitlement to certain benefits”.

 

Links:

Taxation of employee expenses call for evidence

The response document can be found hereand the call for evidence here.

For our subscriber guides on this topic see Employee expenses

Finance Act 2017: tax update and rolling planner

Finance Act 2018-19: Tax update and rolling planner

Autumn 2017 Consultations

 


 

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