Benefit in kind taxation faces a major overhaul

Thu 26 Jun 2014

HMRC has produced no fewer than four consultation documents on the subject of benefit in kind taxation, all on the same day. These consultations derive from recommendations of the Office for Tax Simplification (OTS) and concern:

• replacing expenses dispensations with a Reimbursed Expenses Exemption;
• introducing a statutory exemption for trivial benefits;
• abolishing the £8,500 “lower-paid employees threshold for taxation of BiKs; and
• introducing voluntary payrolling of BiKs.

HMRC propose to

• stop the use of salary sacrifice with non-taxable expenses by way of a targeted anti-abuse rule; ‘umbrella’ type employers in particular would be affected;
• possibly stop any custom scale-rate payments – this would affect any employer paying more than HMRC Benchmark rates;
• stop one person companies and directors of small close companies from receiving scale rate payments (apparently some tax planning involves using personal service companies (PSCs) to avoid NMW); and
• consider if the changeover should happen overnight (earliest 6 April 2015 but unlikely) or over a transition period.

Abolition of dispensations could end salary sacrifice

First reading of the consultation documents makes it clear that part of HMRC’s agenda is to reduce the scope for salary sacrifice arrangements.

Scale rates of expenses

HMRC assert that scale rates for reimbursing expenses, typically for meals and subsistence are not a true reflection of expenses because less than 1% of employers have sought a custom rate. HMRC conclude that the low use of specifically calculated or “custom” rates suggests abuse, apparently assuming that the ability to gain an advantage through claiming a scale rate higher than actual cost must be the sole reason for using scale rates.

Is there another explanation?  Take an employer that would have difficulty in getting actual expense due to nature of business: imagine a construction company asking its workforce to retain and produce receipts for their out of pocket expenses (imagine also the response of the tea bar owner when asked for a receipt for every item!).  Because they can’t get data they are effectively forced into fixed rate.