The second report of the Office of Tax Simplification’s review of employee benefits and expenses has been published setting out recommendations in a number of areas and including some ‘big picture’ ideas for longer term structural reforms. The report builds on the interim report of August last year and develops recommendations in some of the main areas.

The report makes a number of suggestions across a range of areas however, key recommendations made are as follows:

HMRC administration

• A legislative framework to permit employers to payroll some or all of their benefits and expenses on a voluntary basis.
• The scope of PAYE Settlement Agreements should be widened to permit employers to settle any tax liability on benefits and expenses.
• Exemption to be added to the legislation for qualifying business expenses paid for or reimbursed by an employer.
• The £8,500 threshold should be abolished, but with some simple mitigating steps to help some of those affected, and a consultation to confirm the mitigating steps.

Travel and subsistence

• Legislation stating an employee can have only one permanent workplace, being the place where they spend the greatest part of their working time.
• A deduction for travel and subsistence expenses associated with a temporary workplace for the first 24 months regardless of the intended length of an assignment.
• A specific code for homeworkers with one clear definition of homeworking for all tax purposes.
• A formal review of tax reliefs for travel and subsistence should take place every ten years to make sure the system fully recognises changing work patterns.

Longer term projects: structural changes

• Alignment of the underlying definitions of income and expenses for Income Tax and NICs. This would mean aligning the bases on which income tax and NICs are calculated, such that the basis for charging NICs should replicate as far as possible that for income tax.
• Explore further the case for applying Class 1 NICs to all employee remuneration (whether cash or benefits in kind).
• A fundamental review of the government policy on benefits. This should look at whether the government wants to tax cash or cash equivalents differently, whether the way a benefit is provided should determine how much tax is paid on it, and the question of what is a benefit and what is not.