A journey of exploration and discovery
Karen Thomson, CIPP’s Associate director of policy, research & strategic visibility, reviews the OTS’s recent report, and relates the CIPP’s position regarding recommendations
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n January 2014, the Office of Tax Simplification (OTS) published
the Review of employee benefits and expenses: second report, which builds on its interim report published in August 2013. The report, which is 91 pages long (!), contains lots of interesting findings and recommendations (
www.gov.uk/ government/publications/review-of- employee-benefits-and-expenses-second- report.
As the report says, the OTS has been on a journey of exploration and discovery and now it is time to bring back the ideas for how to use them to make improvements.
Taxable benefits generate more than £3.3 billion of tax and NICs for the Exchequer; but that takes some 4.4 million P11Ds and a huge administrative effort all
round. Over 4 million individual benefits were reported to HMRC; but the number of employees concerned with employee benefits and expenses will be much greater as all those who claim travel expenses are in the ambit.
The report comments that “…giving someone a benefit means there will usually be a tax liability which is expected to be fair and just. The trick is to get to that liability (or an exemption) quickly, efficiently and with certainty.” The OTS was encouraged to be radical in their thinking. (I think they have met that objective!)
Interestingly, their research showed most believe the system over-all works,
18 PayrollProfessional
but that it needs improving rather than a complete overhaul. (This view is supported by nearly 70% of CIPP and AAT (Association of Accounting Technicians) members saying a thorough review was required.) The OTS has in mind reducing very substantially the numbers of P11D returns that are completed. That is not the only change it wants to achieve, but it is a way of measuring its potential impact.
Payrolling The OTS reports there was overwhelming support for employers to process benefits in kind through the payroll i.e. ‘payrolling’. The report identifies three questions, all on a theme of ‘all or choose’, in respect of payrolling: l Should payrolling be compulsory for all employers? l If an employer payrolls, should it be compulsory for all benefits? l If an employer payrolls a benefit, should it be compulsory for all relevant employees? The OTS believes the answer to two of these questions is clear; the other is more nuanced: l Employers must be able to choose;
...OVERWHELMING SUPPORT FOR EMPLOYERS TO PROCESS BENEFITS IN KIND THROUGH THE PAYROLL...
payrolling will not work for all. l Again, there must be a measure of choice as payrolling for some benefits (e.g. loans) would be difficult. However, whether there should be a ‘set list’ is more debateable – on balance the OTS think this should be a free choice. l If an employer chooses to payroll a benefit (say, medical cover), it must be payrolled for all employees who receive that benefit.
Employers would be able to continue to pay Class 1A national insurance contributions (NICs) in respect of the payrolled benefits after the end of the tax year, but the OTS suggests legislation could be introduced which would permit them to pay the Class 1A NICs on a monthly/ weekly basis, as part of the payrolling process.
An issue the CIPP foresees with voluntary payrolling, albeit accepting the reasons for this option, is what would happen if an employee has their medical benefits payrolled with one employer and then moves to another who does not? The report states HMRC has this same concern but, the employers the OTS spoke to said it would not be an issue as their human resources (HR) departments would advise the employee on their treatment of benefits. However, the CIPP view is whilst this might be the case it could still leave the employee who regularly changes jobs with a P11D one minute and payrolled the next. I am not sure this would help those who work for the small to medium- size enterprises where there is no HR department? The report states that payrolling will not work for all employers and uses loans
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