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Benefits in kind processes to be reformed

27th Jun 2014
Freelance journalist
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HMRC is considering making “trivial” benefits in kind to employees exempt from tax.

The government says that that a statutory exemption will make it easier for employers to administer small benefits such a bouquet of flowers to an employee who has given birth or a box of chocolates at Christmas.

To remove unnecessary red tape the government is proposing to abolish the £8,500 threshold alongside a new statutory definition of a trivial benefit in kind. It will also consult on how to introduce these changes in a way that won’t adversely affect vulnerable groups of employees.

The consultation paper also proposes a voluntary regime for “payrolling” benefits in kind. Instead of submitting forms P11D to report benefits, reporting and payment would happen at the same time, with employers putting benefits and expenses through as cash equivalent amounts. This would have the advantage of taxing employees in “real time” rather than at some point in the future via their tax code or self-assessment. 

Payrolling has been in the air for more than five years and would offer companies substantial administrative savings, the government said. In a 2011 overview of the subject, the CIPP’s Diana Bruce acknowledged the potential advantages, but also noted that some employer organisations were concerned that payrolling might mean employer-only Class 1A national insurance contributions would be replaced by Class 1, meaning that employees would end up paying NICs on benefits not currently subject to NI.

Also up for consideration is replacing the dispensation regime with an exemption for qualifying expenses that are paid or reimbursed by employers.

This comes after the Office of Tax Simplification conducted a review of expenses and benefits in kind.

Exchequer secretary to the Treasury, David Gauke, commented: “Following the valuable work the Office of Tax Simplification has carried out in reviewing employee benefits and expenses, the government is now consulting on changes that will deliver real improvements for businesses and individuals and their experience of the tax system. We want to make sure we get the structure and detail absolutely right and each consultation will allow us to engage with and learn from those who will be directly affected.”

Questions for the consultation include:

  • The level of a monetary limit in the definition of 'trivial'
  • Whether the statutory exemption should be based on the annual cost or number of trivial benefits in kind provided in a tax year.

The consultation is part of a wider review into employee benefits and expenses. The deadline for responses is 9 September and the government hopes to publish new legislation to be enacted by the Finance Bill 2015.

Replies (2)

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By Carolynne
01st Jul 2014 17:56

Overdrawn Directors Loans?

How would this possibly work with overdrawn Directors Loans?  Until the book keeping/management accounts are done after the period end, we don't know what their actual balance is to put on the P11d forms?  You therefore could not declare in a current month, what their current balance was?  Or am I missing something here.

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By Vaughan Blake1
02nd Jul 2014 09:02

Dangerous argument Carolynne!

HMRC assume that companies fully write their books up at least monthly and so could identify this at the end of every month!

I have had this discussion more than once with HMRC.

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