Claims by officials that the mounting cost of providing tax relief on unreimbursed expenses is grounds to tighten the rules are invalid, the Treasury has been warned.
In fact, in responding to the extended call for evidence on employee expenses, a tax body described the Treasury’s concern that the cost of such claims is increasing as a “red herring.”
The body, the ATT, is right to realise the exchequer regards it as an issue. “The cost of providing this relief [on expenses which employers do not reimburse] is significant,” the Treasury says.
“The government wants to know what drives the cost of this relief to understand the impact on the exchequer over time, and ensure the relief is being used in the way it was intended.”
But an increase in the cost of claims (as much as 25% between 2009 and 2015), should not necessarily ring alarm bells. The Association of Taxation Technicians (ATT) explained:
“An increase in claims may reflect a reluctance on behalf of employers to reimburse expenses in the face of economic constraints, or simply that more employees are becoming aware of the process.”
Furthermore, claims by employees for tax relief on unreimbursed expenses do not increase the amount on which tax relief is granted. The simply change the recipient of the relief.
However, understanding why the cost to the exchequer of the relief on expenses which do not get reimbursed by employers has increased is one of the government’s “main objectives” consultation, announced at Budget 2017.
“The reasons behind the rising cost may be appropriate,” the Treasury says in its now closed call for evidence. “But HMRC has very limited data to explain this increase.”
The ATT provided its explanations — which extend to greater use of HMRX mileage rates since company cars became less efficient, and more people self-assessing, on July 10th.
“We do not see that as the issue,” the ATT said. “We would like to see any future…focus on ensuring that employees have easy access to clear and appropriate official guidance in respect of tax-deductible expenses in general and that the claim process is as easy to use as possible.”
Elsewhere in its response to the Treasury, the association welcomes the reassurance that the “government has no plans to remove the relief on employee expenses.”
But a tightening of the rules has not been ruled out. It would be concerning if the government’s review was seen as an opportunity to introduce any restriction on employees’ entitlements to tax relief on expenditure which currently qualifies for deduction.
It is imperative that employees are entitled to obtain full tax relief for costs which they have been obliged to incur in performing their duties. Where such expenses are not reimbursed (or not fully reimbursed) by the employer, the facility for the employee to claim tax relief from HMRC on the unreimbursed element is essential.