Employees who incur expenses in the course of their work which are not reimbursed by their employer can, in certain circumstances, claim tax relief on their costs from HMRC. The Treasury launched the call for evidence as they were concerned that the cost of giving such relief was increasing. The purpose of the call for evidence was to help the Treasury understand if:
- Rules on employee expenses could be simplified
- Current tax rules on expenses are fit for purpose
- Reasons for the significant increase in the cost of relief could be identified.
The Treasury published their response on 1 December 2017. Overall, there was little enthusiasm from respondents for significant change in this area. Many rules and practices are long-established so, even if they are complex, employers are familiar with them. However, respondents said that they would welcome simplifications to reduce administration, along with better guidance for employees on what tax relief they can claim.
The Treasury response highlighted:
- Employers’ systems generally follow the tax system very closely, so any changes to tax rules will impact large numbers of employers. Changes need to be carefully considered.
- Employers are not generally advising their employees how to claim tax relief on expenses that have not been reimbursed. This means that it is even more important that guidance is easily available and clear, so that employees are not left out of pocket.
In the Autumn Budget 2017, the Government announced that from April 2019 new legislation will:
- Allow employers to make payments to employees using benchmark scale rates without having to check receipts
- Put the current concession for scale rates on overseas accommodation and subsistence onto a statutory basis.
The Government will also look to improve guidance on employee expenses and consult on extending tax relief for employees (and the self-employed) who incur costs on work-related training.
In their response, the Government also confirmed that there are a number of areas where it is not intending to make any changes. These include:
- Travel and subsistence - while travel and subsistence costs for employees are a big issue, the Government did not identify that there was sufficient consensus in the submissions to make any major changes.
- Treatment of expenses for home workers.
- Relocation costs allowance of £8,000.
- Flat rate expenses (FREs) - the Government have no plans to make changes to the amounts of FREs, or the variety of FREs that exist for different occupations.
- National Insurance - individuals claiming relief on non-reimbursed expenses can only obtain income tax relief. There is no equivalent relief for Class 1 primary National Insurance. This means employees are better off if actual costs are reimbursed by their employer. This is unlikely to change.
- PAYE settlement agreements (PSAs). There will be no increase in the scope of PSAs, but the Government will explore improvements to the PSA process.