Call for evidence on the taxation of employee expenses

Call for evidence on the taxation of employee expenses

The call for evidence on the taxation of employee expenses seeks to better understand how the relief is being used.

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As announced at Autumn Statement 2016, the Government has now published a call for evidence on the taxation of employee expenses, to better understand how the reliefs on these are used. Employee expenses generally fall into one of three categories: Expenses which the employer pays directly; expenses which the employee pays and which are reimbursed by the employer; and expenses which the employee pays and which are not reimbursed. Where the employer reimburses the employee, the reimbursement is effectively ignored for tax purposes as a result of the changes brought forward in 2016. Prior to that the employer had to report the reimbursement to HMRC and the employee then had to claim the corresponding tax relief (see below), unless the employer had agreed a Dispensation with HMRC in advance of the reimbursement being provided. Where there is no reimbursement, the employee may claim tax relief on the expenses assuming that they meet the statutory test of being wholly, exclusively and necessarily incurred in the performance of employment duties.

Why is there a call for evidence?

Due to the current system of ignoring reimbursed expenses and the former system of Dispensations, HMRC have limited data regarding reimbursed expenses. The information which HMRC do have, on expenses not reimbursed, indicates that there has been a 25 percent rise in such claims since 2009/10 and that such claims are now costing £800 million per annum.

HMRC therefore wish to better understand how the relief for expenses is being used. The call for evidence does stress that there are no plans to remove the relief.

Objectives

The stated objectives of this call for evidence are:

  • Can the current rules be simplified? HMRC seem to be surprised that many employees are using reclaim agents to claim relief on their expenses and that this trend is increasing.
  • Are the current rules fit for purpose? Presumably this fits into the wider piece on how modern working practices are reported to be changing.
  • Why are employee expense claims rising? As mentioned above, HMRC do not believe they have sufficient oversight to determine the drivers behind this trend.

In order to understand the three objectives, 17 questions have been posed in this call for evidence, split into the following areas:

  • How expenses affect employees;
  • Employees’ expectations of how their employer will treat their expenses;
  • Changes in expense practices;
  • Reflecting modern working practices;
  • How employees claim the tax relief; and
  • The future of employee expenses.

Responding

It will be interesting to see how the evidence given by various stakeholders informs and shapes HMRC’s future policy. However, questions such as ‘What evidence are employees expected to provide to their employers of their expenses?’ and ‘Are flat rate expense allowances still appropriate?’ may be a sign of the direction of travel. Additionally, a key area may be the per diem amounts currently reimbursed without receipts where employees are required to work overseas.

The deadline for responses to the call for evidence is 12 June 2017.

 

For further information please contact :

Patrick Martin

Seamus Murphy

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