Contractors, alongside their advisers and contracting service providers, are invited to contribute to four new government consultations on employee benefits and expenses. A further major consultation on travel and subsistence is expected later in 2014.
The consultations include proposals developed by the Office for Tax Simplification (OTS) in a report submitted to government in January 2014. If adopted, they could significantly reduce the administration burden, and compliance costs, for limited company contractors and umbrella contractor service providers.
“OTS proposes new processes that could eliminate the need for 99% of the 4.4m P11D forms that employers submit each year,” says Dave Chaplin, CEO of ContractorCalculator. “This is just one of the potential benefits from revamping an existing system that is not fit for today’s flexible working patterns.”
Optionis managing director Derek Kelly agrees: “I fully support the Treasury’s aim of producing a new expenses system that reflects working patterns in the 21st century. Any measure that seeks to increase transparency, raise standards and stamp out unethical practices in the recruitment and outsourced employment sector is to be applauded.”
Following the 2014 Budget, during which these new expenses and benefits reviews were introduced, it was suggested that a broader review of travel and subsistence expenses would be conducted later in the summer of 2014.
What are the four new consultations?
So, far the Treasury and HMRC have published four consultations that mainly cover aspects of the reporting of expenses and benefits in kind.
In line with OTS recommendations, the objective is to reduce administration costs for employers, including contractor limited companies and umbrella companies, without providing greater opportunities for abuse. The idea is also to free up HMRC resources so that the taxman can better support taxpayers.
The four latest consultations cover:
- Employee benefits and expenses: exemption for paid or reimbursed expenses. This seeks to exempt some expenses from P11Ds, and to replace the existing dispensation framework with something simpler
- Employee benefits and expenses: abolition of the £8,500 threshold for lower paid employment and form P9D – contractors are unlikely to be affected
- Employee benefits and expenses: trivial benefits exemption. This would exempt ‘trivial’ benefits in kind from having to be reported
- Employee benefits and expenses: real time collection of tax on benefits in kind and expenses through voluntary payrolling. The income tax and National Insurance Contributions (NIC) liability for benefits in kind could be paid in real time via a contractor’s payroll, rather than via a lump sum.
Many limited company contractors would benefit from reduced compliance and administration costs if these measures were adopted
Dave Chaplin, ContractorCalculator
“Many limited company contractors would benefit from reduced compliance and administration costs if these measures were adopted,” continues Chaplin. “In theory, the admin burden for many service providers should also be lessened, although whether these cost savings will be passed onto their contractor clients remains to be seen.”
Consultation on major changes to travel and subsistence rules to come
Chapter 6 of OTS report on benefits and expenses sets out proposals that could have an impact on how contractors administer and benefit from their travel and expenses costs.
In its report, OTS claimed that. “There are difficulties in areas such as the ’24 month rule’ and attending multiple workplaces”, but that “overall, employers do not want major change”.
The measures proposed by OTS include:
- Introducing new rules to clarify what constitutes a permanent workplace using a statutory percentage test, likely to be based on a 30% benchmark
- Changing the existing 24-month rule to allow a full 24-month deduction, regardless of the intention at the beginning of the assignment. This will benefit contractors on longer contracts with multiple renewals
- New rules for homeworking, including a new code for homeworkers. This could result in changes to expenses claims rules for working at home, but should not affect most mainstream contractors
- A new section in the existing tax legislation covering administration and subsistence expenses – currently, there isn’t one
- Clarification of the rules over living accommodation that will include company-owned accommodation.
OTS also suggests improving HMRC’s guidance on the often complex travel and expenses rules through:
- A new edition of the taxman’s main guidance on the topic, ‘booklet 490’
- Clarification of the obligations of employers applying benchmark rates.
Should the existing system be scrapped?
OTS closes its discussion on the travel and subsistence rules by suggesting one final solution: “This is to remove the current system and introduce a completely new legislative system whereby all travel and subsistence expenses would be allowable if reimbursed by the employer.
“We recommend a formal, comprehensive study is carried out on this possible radical change to test the issues further and assess its potential impact,” adds OTS.
“We will have to wait and see exactly what is included in the consultation when it is published before evaluating the likely impact on contractors,” says Chaplin. “Most of the proposals are quite modest, although beneficial to contractors. So will the government seriously entertain a radical suggestion such as scrapping the rules entirely and starting again?”
Kelly concludes: “It’s important that employers make their views known during the consultation period, because this is a golden opportunity to create an expenses system that works for all parties. Hopefully this summer’s consultation will be the first step in the creation of a fairer and more sensible system.”
Details of how contractors can make their views known can be found on the individual consultation page via the links above.