OTS second report drives expenses and benefits into the modern era

Thu 14 Aug 2014

It looks as if the OTS review of employee benefits and expenses will bear fruit in a comprehensive overhaul of the benefits and expenses system, paying particular attention to the modern commercial realities of contemporary working life, including working from home and temporary work.

The Government announcement is in response to the OTS’s Review of employee benefits and expenses: second report which considers in particular:

• fundamental reform of relief for employee travel and subsistence;
• benefit payrolling as an alternative to P11D returns;
• broadening PAYE settlement agreements (PSAs) which are at present only available for small, irregular benefits;
• abolishing the £8,500 threshold which long, long ago ceased to be a meaningful definition of ‘higher-paid’ (and was last increased, from £5,000, in 1979, when petrol cost 22p a litre);
• statutory exemption for trivial benefits up to a set limit;
• PAYE dispensations to be replaced by a statutory exemption for routine qualifying business expenses paid or reimbursed by an employer in place of the current PAYE dispensation process;
• what can be done to simplify NICs; and
• the possibility of a fundamental overall review of benefits and expenses.

The government’s stated aim is “to start from first principles and produce a new set of rules that will work with modern day practices” which makes the proposed timetable dauntingly tight since the window for responses to the consultation is open from July (it was announced on 31 July) until October 2014 (no specific date) with a view to producing proposals in the Autumn Statement and draft legislation in the 2015 Finance Bill.

The one certainty is the unsurprising declaration that any new system will not provide tax relief for private travel or ordinary commuting.

Drastic reduction in P11Ds

P11Ds look unlikely to disappear altogether but the OTS believes that a target of 99% reduction is possible.