Changes ahead for Benefits?

The Office of Tax Simplification (OTS) is calling for a major review of the regulations covering accommodation benefits and termination payments to tackle complexity and unfairness in the current tax system say Harris & Co accountants Northampton #accountantsnorthampton

In its final report on employee benefits and expenses (EBE), the OTS says there needs to be an overhaul of the regulations which will require a policy review. In the meantime, it recommends a number of minor changes to the rules on accommodation benefits and termination payments which it says will offer some ‘quick wins’.

John Whiting, OTS tax director, said:

‘Accommodation and terminations are difficult and sensitive areas of the tax system. Whilst we heard wide consensus on the need for reform, not least because the rules do not seem to have kept up with changes to working practices, finding a way forward has not been easy.’

‘Consequently we have suggested some short-term improvements but we really think these are areas for fuller study.’

On termination payments, the OTS says most people assume that any ‘payoff’ is tax free up to £30,000, but while the well-advised can obtain exemptions, others too often miss out. It wants to tie the exemption to statutory redundancy and to allow any payment, to a multiple of the statutory redundancy amount, to be tax free.

On accommodation benefits, the OTS report says:

‘We have now reached a point where the combined effect is a system of rules that are too arbitrary and inconsistent, and difficult to apply.’ It says the rules for exempting staff living in employer-provided accommodation because it is customary and for the better performance of their duties are not working well or consistently.’

The OTS points out that ‘grandfathering’ from the pre-1977 rules is causing anomalies, while calculating the tax charge in any given situation has become complex. It also says the rules for calculating the benefit are outdated, often relying on 1973 rateable values and a £75,000 value for expensive properties.

The report suggests the most basic accommodation is taken out of the tax charge entirely, and that existing exemptions are reformulated with the aim of distinguishing more accurately between what is really a ‘perk’ and what is needed to get the job done.

In particular, it wants to see the ‘customary’ rule in the current legislation dropped, describing it as ‘unworkable’ and ‘unfair’ because it favours long-established occupations over newer ones. The OTS says the obvious way to assess any benefit is to use open market value rental, taking into account all relevant factors.

A number of other issues are also highlighted as risk areas, including the need to increase the amount of tax-free removal expenses significantly; the requirement to reform the tax rules on long service awards; and tackling authorised mileage allowance payments (AMAP) rates.

The OTS says its main recommendations would require ‘radical change’ to the present system and would need to be subject to a formal consultation process which would include examination of the need for any transitional arrangements. ‘Ultimately, it is up to the Chancellor and Treasury ministers to decide on how to proceed’, the report states.

The government is expected to respond to the report ‘in due course’, possibly at the Autumn Statement later this year.