The Office of Tax Simplification has published a set of recommendations to simplify the current complex system for reporting and taxing employee benefits and expenses, which could see benefits processed through payroll instead of P11Ds and employers deducting PAYE settlement agreements (PSA) say Harris & Co accountants Northampton, the specialist small business accountants.
The recommendations in its report issued today could simplify benefits and expenses for four million employees and 300,000 employers.
In its report, which contains more than 20 proposals, the OTS suggested processing benefits through payroll to reduce the burden on employers and make the reporting more accurate.
Its call for the extension of the PAYE Settlement Agreement (PSA) process would allow employers to deduct all tax due on benefits and expenses whereas currently, only certain expenses can be paid this way.
In addition, the OTS suggests a de-minimis limit for trivial expenses – anything under £50, it suggests, will not need to be taxed.
And it is set out suggestions for clearer rules on the definitions of workplaces, ensuring employees only have one permanent place of work which is where they spend most of their time.
There are considerations for longer term study in the areas of moving national insurance contributions (NICs) and income tax closer together, including harmonising definitions and modernising NIC calculations, as well as the proposal for a fundamental policy review as to what is and what isn’t a taxable benefit, taking into account today’s working practices.
OTS tax director John Whiting said his office had listened the agents, HMRC staff and employers who use the system, and found that there is much scope for it to be simplified and streamlined.
‘We can get some real simplification wins with some sensible changes to what counts as a benefit and how it is taxed, together with some modernising of the rules around travel and subsistence.
‘We believe the recommendations we have made better reflects today’s working practices. Our quick wins will help, but the bigger work will begin to fundamentally change the way benefits and expenses are reported, making it easier for everyone. There is a big target here: the 4.5 million P11Ds completed annually, which we think could be reduced by 90% or more,’ said Whiting.
The report builds on an interim OTS report published last summer which set out a series of quick wins, including streamlining the cycle to work scheme; aligning tax and NIC treatment of mileage rates over 45p; changes to HMRC forms; and, publishing a list of items that automatically qualify for a ‘dispensation’ (meaning no benefit will arise for employees).