HMRC have published a call for evidence: ‘Taxation of employee expenses call for evidence’ in respect of the use of income tax relief for employee business expenses, including those not reimbursed by employers.
HMRC highlight that:
- Tax relief claimed by employees for non-reimbursed expenses costs £800m a year
- There was a 25% increase in such claims between 2009/10 and 2014/15.
- There appears to be an increase in the use of agents, who claim tax relief on behalf of employees in return for commission.
Although there are no plans to remove reliefs for employee expenses, the government want to understand their use better. The main objectives of the call for evidence are to determine:
- If the current rules or their administration can be made clearer and simpler.
- Whether the tax rules for expenses are fit for purpose in the modern economy.
- Why the tax relief claimed has increased so much.
The deadline for replies was extended to 10 July 2017, following the decision to call an early general election. The response was published on 1 December 2017.
Summary of consultation questions
How expenses affect employers:
1. What expenses do employers pay for or reimburse?
- Does this vary between employees (e.g employees on different salaries or contracts)?
- Are there different practices in different sectors?
- Please set out your expense policy if applicable.
2. How do employers set expense policies? For example, is the type and level of expenses that will be reimbursed set out in contracts, through informal arrangements or on a case by case basis?
- What are the main factors employers consider when deciding whether to reimburse an expense?
- If employees are incurring expenses that would be eligible for tax relief, why might the employer not reimburse the expense or not reimburse it in full?
- What do employers who don’t reimburse tell their employees about claiming tax relief?
3. Do employers pay for employee expenses with cash allowances rather than reimbursing specific expenses?
- If so what factors do employers consider when offering a cash allowance including how much they decide to give?
- Do employees receiving a cash allowance claim for relief on expenses?
Employees’ expectations of how their employer will treat expenses:
4. What work expenses do employees normally incur? Please include any data you have on which expenses employees claim for reimbursement from their employer and how frequently employees do this.
5. Do employees expect their employers to reimburse the expenses?
- What factor does this depend on, for example, does the size of the organisation or sector influence employees’ expectations?
- Do employees influence their employer’s expense policy and does whether an employer reimburses or not impact the retention and recruitment of employees?
6. What evidence are employees expected to provide to their employers of their expenses?
7. Do employers know of employees who incur expenses which are not reimbursed and which would qualify for tax relief from HMRC?
- If so, why are these expenses not reimbursed and do employers know if employees are claiming tax relief from HMRC?
Changes in expense practices
8. Has the type and amount of expenses employees incur changed in the last 5 – 10 years and, if so, how and why?
- Does this vary by sector or the type of expense?
9. Has the type and amount of expenses employers reimburse changed in the last 5 – 10 years and, if so, how and why?
- Does this vary by sector or the type of expense?
Reflecting modern working practices
10. Do you think the scope of the current tax relief for employee expenses reflects the expenses employees have today?
- Are there are any types of expenses that are currently eligible for relief where that no longer seems appropriate, and why?
- Are there any expenses which don’t fall within the current exemption which you think should and why?
11. Do HMRC’s rules on expenses guide employers’ expense policies? For example, do some employers only reimburse expenses which qualify for tax relief?
How employees claim the tax relief
12. Do employees know the rules for expenses and how to claim for expenses which are not reimbursed?
- How do employees find this information?
13. Do employees usually claim directly or indirectly from HMRC?
- Why do employees claim in different ways and does this vary by the type of expenses?
- Do employees use agents to claim on their behalf? If so, why do employees do this? How much are they claiming for and how much does it cost to use an agent? Please provide data if possible.
- Do you think the use of agents has become more widespread? If yes, why do you think this is the case? Please provide data if possible.
- Do employers ever claim a tax relief for expenses which aren’t reimbursed from HMRC on their employee’s behalf? If so, why?
14. Are flat rate expense allowances still appropriate?
- If flat rate expense allowances were not available, would employers reimburse these expenses?
15. Do you have any other suggestions for how the tax rules could be made clearer or their administration could be simplified for employers and employees?
- How could HMRC make it easier for employees to claim the tax relief directly and do employees know that making a claim directly from HMRC is a free service?
The future of employee expenses
16. How do you expect expense practices to change in future?
- Do respondents think there will be a wider range of employee expenses?
- Will the type of expenses employees pay, and claim for, change?
- What factors will influence employers’ decisions whether to reimburse or not in future? Will employers be less inclined to reimburse certain expenses?
- What are the contributing factors to these changes?
17. Are there areas of the tax treatment for expenses that the government should explore further?
Links
The call for evidence document can be found here
Taxation of employee expenses: response to the call for evidence
For our subscriber guides on this topic see Employee expenses
Finance Act 2017: tax update and rolling planner
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