Back in May of this year, the Treasury issued a consultation document, ‘Taxation of employee expenses call for evidence’. This was driven by the Government wanting to understand more about the increasing number of claims for non-reimbursed travel expenses made by individuals and to ensure that the rules are effective.
According to the Treasury, the cost of providing tax relief to employee expenses is significant and end of year claims made by employees has risen by 25% between 2009/10 – 2014/15. These claims cost the Exchequer £800 million per year.
The call for evidence, which posed 17 questions contained in three sections, sought views on:
current employer practice on employee expenses
current tax rules on employee expenses
the future of employee expenses
Whilst there are no plans to remove the relief on employee expenses, the Government will use the information gathered from this call for evidence to shape future policy development. Whilst there are no plans to remove the relief on employee expenses
On the closing date for evidence, 10th July, the Association of Taxation Technicians (ATT) submitted its evidence.
Costs to the Exchequer
The ATT disputes the £800 million cost figure and claims this could be misleading as it only reflects part of the equation.
If the employer fully reimburses the employee’s cost, then it is a deductible expense in the employer’s accounts, reducing their tax bill. This cost is not easily identifiable in the information supplied to HMRC. If, on the other hand, the employer does not reimburse the employee’s cost, the employee can claim tax relief at their marginal rate of Income Tax from HMRC. No refund of Class 1 NIC however is available. Tax relief is given in some form either way. The ATT’s point is that the £800 million figure does not reflect the complete picture and any attempt to discourage any further increase in the level of employee expense claims to HMRC might not increase revenue to the Treasury in the manner anticipated.
ATT members who responded to a survey also identified a number of other reasons that may have led to an increase in claims for travel expenses.
Both public and private sector employers have experienced economic constraints over recent years. Employers may therefore be choosing to manage costs by restricting employee reimbursements, with the result that employees then seek tax relief from HMRC on their unreimbursed expenses. Both public and private sector employers have experienced economic constrainsts over recent years.
Greater public awareness
Employees are now more aware that they can make claims for unreimbursed expenses. Professional bodies and unions often provide guidance and encourage their members to claim relief for subscriptions and flat rate expense allowances. There is also more information online, with some agents specialising in employee expense claims.
As more employed people have been brought into self-assessment because of, for example, the High Income Child Benefit Tax Charge, they may be prompted to consider their entitlement to relief on unreimbursed expenses or perhaps find the process of claiming via Self-Assessment simpler than making a standalone claim.
Relinquishing the company car
As company cars have become less tax-efficient and employees increasingly use private vehicles instead, this will have increased mileage claims for use of employees’ cars.
Public sector bodies
HMRC sets Approved Mileage Allowance Payments (AMAPs) limits for business mileage which can be reimbursed tax-free. For motor vehicles these are 45p per mile for the first 10,000 business miles in a tax year, and 25p per mile thereafter. Other public sector bodies however may set their own rates. Employees reimbursed at more than the AMAPs are in receipt of a benefit which must be reported on a P11D or taxed via their payroll, while those reimbursed at less than the AMAPs should seek tax relief from HMRC.
NHS staff on the Agenda for Change pay scale are one example. An NHS employee doing 3,000 business miles is paid 56p per mile, generating a benefit in kind of £330 which needs to be reported and taxed. Conversely, an NHS employee doing 10,000 business miles is paid over the AMAP’s rate for the first 3,500 miles then under it for the next 6,500. The result is they are reimbursed £1,240 less than the AMAP’s rate overall and would need to seek tax relief from HMRC. In both cases, additional administration for the NHS and HMRC is generated because the NHS has departed from the HMRC approved rates.
Improving the claim process
The ATT would be very concerned 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. Any such attempt is likely to be characterised in the media as a stealth tax.
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 as the employee has incurred an expense.
The ATT believe that the focus by both the Treasury and HMRC should be on ensuring that all employees (and particularly those on lower pay) have easy access to clear and appropriate official guidance in respect of tax deductible expenses in general, and as simple and straightforward a claim process as possible in respect of unreimbursed expenses.