Taxation of employee expenses

    The Treasury has released a response to the consultation launched in March 2017 concerning the taxation of employee expenses. Whilst no wholesale changes are planned, further work is going to include a focus on travel and subsistence claims and a consultation on the scope of work related training costs.

    Following 53 written contributions from a cross section of accountants, representative bodies and individual employees and a programme of 11 meetings between HMRC, HM Treasury and 30 stakeholders across London, Derby, Leeds and Edinburgh, the response to the consultation is best described as ‘steady as she goes.’

    The initial objectives of the consultation focused on three particular issues, namely whether the rules surrounding the taxation of employee expenses were clear and simple, whether the rules were fit for purpose in a modern economy and, finally, to explore why the cost of tax relief on non-reimbursed expenses by employers had increased by 25% between 2013/14 and 2015/16.

    Whilst acknowledging improvements could be made, responses to the consultation portray a business community with little appetite for significant reform and broadly happy that the rules still reflect expenses employees continue to incur. The rules were found to be well-established and understood by employers, although claims for travel and subsistence were found to be particularly confusing for employees, with some respondents finding the system to claim relief difficult to navigate. Some respondents also commented about the increase in working from home and the prevalence of employees working between several different offices, as helping contribute to the confusion.

    The sharp jump in the cost of claims was put down to a combination of improved awareness by employees of how to claim, some businesses reimbursing less generously than before to keep costs down and the rise of advertising by tax refund firms.

    Moving forward, the concern around travel and subsistence claims is tempered by the desire to avoid replacing one set of complex rules with an equally complicated set of reforms, so whilst no changes are planned at the moment further discussions are going to take place with external stakeholders to explore potential improvements.

    Of more interest is likely to be a consultation due to be brought forward in the spring of 2018, to address the inequality surrounding training costs. If an employer pays for a training course, tax relief is available. However, if an employee were to fund the same course, the cost would not be reimbursed. The consultation is going to examine the scope of tax relief currently available to employees and the self-employed for work related training costs. The government is keen to support life-long learning, so some changes can be expected.

    If you would like to discuss the content of this article further, please email the author, our Head of Technical Research, Guy Smith at g.smith@abbeytax.co.uk.