The Finance Bill 2017-18 will contain a number of specific reforms to the taxation of employee expenses, but will stop short of a major overhaul of the current rules, after responses to a consultation earlier this year indicated that they are generally fit for purpose
The Treasury’s original call for evidence on the taxation of employee expenses ran from March to July and found little appetite for significant reform, although respondents said the process of engaging with the system can be burdensome, and the system for claiming relief on non-reimbursed expenses can be difficult to navigate.
The consultation asked for views on why the cost of tax relief on non-reimbursed expenses has increased in recent years. Almost 5m individuals claimed £740m in 2015-16, a 25% increase from the cost in 2013-14, but no clear arguments were put forward as to the reasons behind this rise.
In its response to the consultation’s findings, the Treasury said it is not clear that there are major areas where the current rules do not reflect modern working practices. While there are areas of complexity, employer policies and processes are typically designed to operate within the current framework and so there could be significant costs from major reforms.
However, in response to feedback from the call for evidence, there will be changes in legislation to remove the requirement from April 2019 for employers to check receipts when making payments to employees for subsistence using benchmark scale rates, in order to reduce the administrative burden on businesses and employees.
New legislation will also place the existing concessionary accommodation and subsistence overseas scale rates on a statutory basis from the same date, to provide certainty for employers.
Many respondents mentioned training expenses as an area that the government could explore further. In particular, some were concerned that tax relief applies if an employer pays for a training course, but not if the employee funds the same course and it is not reimbursed.
In order to support retraining and upskilling for employees at all points in their working life, the government will consult in 2018 on extending the scope of tax relief currently available to employees (and the self-employed) for work-related training costs.
It will also work with external stakeholders to explore possible improvements to the guidance on employee expenses, particularly on travel and subsistence, and the process for claiming tax relief on non-reimbursed expenses.
Taxation of employee expenses: response to the call for evidence
Report by Pat Sweet
