19 Apr

Benefits and expenses tax reform

The current rules for taxing and declaring benefits and expenses have been criticised as over –complicated. After the Office of Tax Simplification took on the task of coming up with a better alternative in 2014 the government announced in the 2014 autumn statement that it was going to go ahead with most of the suggestions.

Firstly the £8,500 earnings threshold for lower paid employees below which there are special rules for the taxation of benefits in kind will be abolished with effect from 6 April 2015. Meaning that:

  • All employees will be taxed on benefits using the rules that currently apply only to directors and employees earning at an annual rate in excess of £8,500 per year

  • The NI treatment will also be aligned so that employers will pay Class1A contributions on the benefits of all employees

  • The return Form P9D will be abolished as it won’t be needed.

Tax-free expense payments

From April 2016 business expenses reimbursed to employees will be exempt from tax and NI. This will only apply where the employee would be entitled to claim them as tax deductible had they not been reimbursed. Consequently, employers will not be required to report the expenses on Form P11D. This will be welcome news for many businesses.

Trivial benefits

Also, from April 2016 there will be no charge to tax and NI, or the need to report on Form P

  • The cost does not exceed £50 (or £50 per person if provided to several employees at once)

  • The benefit does not consist of cash or a credit token (including the use of a credit card)

  • No salary sacrifice is involved; and

  • The benefit isn’t linked to any particular service provided by the employee

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