The work of the OTS continues apace. Following the recent exchange of letters between the Exchequer Secretary and the OTS, the Terms of Reference for projects on employment status and tax penalties are now agreed and publically available.

The Government has commissioned the OTS to examine the dividing line between employment and self-employment and whether it is drawn in the right place and in the right way. In the area of tax penalties the OTS will examine whether penalties could be simplified, made more consistent and more effective in successfully driving compliant behaviour.

The OTS has also published its interim report “Review of partnerships: update and call for evidence” which provides an update on its work on the taxation of partnerships. In the now usual style of the OTS, the interim report proposes some short-term fixes, medium-term recommendations, and longer-term areas to investigate

Its 3rd and final report on the Review of employee expenses and benefits was also recently published. This report covers accommodation benefits, termination payments and a variety of smaller topics and also includes an update from HMRC on progress on the OTS’s ‘quick wins’.

In outline, the OTS’s findings include:

Accommodation benefits:

• 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
• ‘grandfathering’ from the pre-1977 rules causes anomalies
• rules for calculating the benefit are outdated, often relying on 1973 rateable values and a £75,000 value for expensive properties
• better way forward is to frame the exemption more closely around ‘necessary for the job’
• obvious way to assess any benefit is to use open market value rental, taking into account all relevant factors

Termination payments:

• most people assume that any ‘payoff’ is tax free up to £30,000 – but in practice this is far from the case
• in general the well-advised can obtain the exemption; others too often miss out
• better route is potentially to tie the exemption to statutory redundancy and to allow any payment, to a multiple of the statutory redundancy amount, to be tax free

Other recommendations from the report include:

• amount of tax-free removal expenses needs increasing significantly
• tax rules around long service awards need reform
• various other items need attention, including mileage allowances