Autumn Statement 2014: Government responses to Office of Tax Simplification (OTS) recommendations on employee benefits, expenses and share schemes

The rules governing the taxation of employee benefits and expenses are complex and it has been identified that they impose a significant administrative expense on employers. It was announced in the 2014 Budget that legislation would be brought forward in the 2015 Finance Bill.

The Government is to take forward the OTS recommendations on the taxation of employee benefits and expenses over a two year period.

From April 2015 a new exemption will be introduced for “trivial” benefits with a monetary value of less than £50;

From April 2016:

  • the special regime applying to employees who are paid less than £8,500 will be abolished and new exemptions will be introduced for carers and ministers of religion;
  • certain reimbursed expenses, of the sort typically covered by a P11D dispensation agreement, will be made tax exempt; and
  • a statutory framework will be introduced for voluntarily payrolling benefits in kind.

The new exemption for reimbursed expenses will not be available where employers seek to use salary sacrifice to replace salary with benefits.

Two OTS proposals have not been taken forward. These are the proposed introduction of new rules on “marketable securities”, which was intended to reform the taxation of employee shares; and the introduction of a new employee shareholding vehicle, which was intended to create an alternative to employee share ownership trusts. Both proposals drew criticism during the consultation process:

  • the “marketable securities” proposal was seen as introducing unnecessary complexity;
  • the proposed rules on the new employee shareholding vehicle appeared to be too restrictive to solve the problems that the proposals were being introduced to address.

We anticipate that the changes that will come into effect in April 2015 will have only a modest impact on businesses, although businesses will welcome the relaxation of the rules that the “trivial benefits” exemption represents.

The changes scheduled for 2016 will be more far-reaching, with employers needing to review the proposals in the light of their existing P11D dispensations, and their arrangements for monitoring benefits in kind and whether they have been “made good” by employees.