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Four new consultations on the taxation of expenses & benefits launched

23 June 14 | By: Jas Jhooty

HM Treasury

The UK Government is to act on the findings of a review by the Office for Tax Simplification (OTS) and overhaul the taxation of employee benefits in kind and similar expenses. The Coalition has launched four consultations on plans to reform rules concerning these payments, based on measures that were outlined at Budget 2014.

Abolition of the £8,500 threshold for ‘lower paid’ employments

Currently employees with pay and benefits in kind of less than £8,500 annually are not liable to income tax on all benefits in kind (liability is restricted to vouchers, credit cards and living accommodation). Employers have separate reporting requirements on form P9D for these employees. The government’s intention is to abolish the £8,500 threshold, which will result in all employees irrespective of income being subject to income tax on benefits in kind in exactly the same way. With the Personal Allowance increasing to £10,000 from 06 April 2014 most employees will not be affected by abolition of the threshold. Some employees with secondary employments and benefits in kind may be affected. Employers will become liable to Class 1A National Insurance contributions (NICs) on most benefits in kind irrespective of the pay and benefits in kind package of the employee, but in future need only complete one return (P11D) for all employees who have benefits in kind.

The full consultation document can be viewed here.

Trivial benefits exemption

HMRC will consult on the introduction of a statutory exemption for trivial benefits in kind and what form that should take. It is intended to cover items such as small non-cash benefits like a bottle of wine or a bouquet of flowers given occasionally by an employer to an employee. This will remove reporting requirements for employers, and mean there will be no liability to Class 1A NICs for employers or income tax for employees on any benefit in kind classed as ‘trivial’ that falls within the exemption. The consultation will seek views on the definition of a trivial benefit in kind and explore if the exemption should be based on the annual cost, or the number of trivial benefits in kind provided in a tax year.

The full consultation document can be viewed here.

Voluntary ‘Payrolling’ of benefits in kind

The consultation will explore how a legal framework can support employers who want to account for tax on benefits in kind through their payroll instead of reporting benefits in kind on forms P11D after the end of the tax year. The option to ‘payroll’ benefits in kind will be entirely voluntary but the consultation will explore how participating employers will carry out ‘payrolling’ and how to ensure consistency in making sure that the correct income tax is collected throughout the tax year. Views will be invited from employers and software developers who already support informal payrolling. This is the first phase and the consultation proposes that further work will follow.

The full consultation document can be viewed here.

Replacing dispensations with an exemption for paid or reimbursed expenses

Currently where an employer reimburses expenses for which the employee qualifies for tax relief they can apply to HMRC for a Dispensation. A Dispensation is an agreement that allows the employer to pay specified expenses to their employees without deducting income tax or National Insurance Contributions, or reporting the payments to HMRC.

Under the new proposal, employers will no longer need to apply for a dispensation to receive this treatment. Instead employers will automatically be permitted to make expenses payments to their employees without deducting tax or National Insurance contributions (NICs), or reporting them to HMRC, provided that they can satisfy themselves that the expenses being reimbursed to the employee qualify for tax relief in full. This will be done through the employer’s own internal checking and control procedures. In addition, some employers do not currently apply for a dispensation because they perceive the process to be complex. Instead they report the expenses on form P11D, with the employee making a separate claim to HMRC for any tax relief due. These employers and their employees will also benefit from the new exemption.

The full consultation document can be viewed here.

How emTax can help

emTax consultants will be attending meetings with HMRC policy unit in Whitehall over the summer to discuss the impact these proposals are likely to have when implemented. If you have any opinions on any of these proposals and would like to have your views expressed at these meetings please do not hesitate to contact us.


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