The taxation of employees’ expenses (UK)

A consultation on extending the scope of the tax relief currently available to support life-long learning and re-training for employees and the self-employed will be held next year as one of four measures to address specific concerns raised by HM Treasury’s ‘Taxation of employee expenses call for evidence’ * then announced in Autumn Budget 2017.

The other measures identified for change are

  • the requirement for employers to check receipts when making subsistence payments to employees using benchmark scale rates will be removed from April 2019
  • the existing concessionary accommodation and subsistence overseas scales rates will be placed on a statutory basis from April 2019
  • HM Treasury will work with external stakeholders to explore improvements to the guidance on employee expenses, particularly on travel and subsistence and the process for claiming tax relief on non-reimbursed expenses

The cost of providing tax relief on expenses which employers do not reimburse and employees claim from HM Revenue & Customs costs the Exchequer £800 million pa. There has been a 25% increase in claims between 2009-10 and 2014-15, while the number of individuals benefiting from relief rose from 3.95 million in 2009-10 to 4.9 million in 2015-16.

The government has no plans to remove the relief and the main objectives of the Call for Evidence were to help determine

  • if the current rules governing its administration can be clearer and simpler
  • whether the reliefs are fit for purpose in the modern economy
  • why the cost to the exchequer of tax relief has increased

The main findings were

  • there is little appetite among respondents for significant reform
  • employers are used to the current rules but the process of engaging with the system can be burdensome
  • individual employees face challenges in understanding and engaging with the expenses system
  • broadly, the rules are still fit for purpose in the modern economy and reflect the expenses employees have today

Millions of employees and their employers could be affected by changes to the taxation of employee expenses and – in light of the evidence provided by the call for evidence – the government will ‘approach any reforms very carefully’.

* ‘Income Tax Relief for Employees’ Business Expenses (UK)’, CPA News, 23 March 2017.

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