Taxation of employee expenses consultation

In May 2017 the Treasury published a call for evidence in order better to understand the use of the income tax relief for employees’ business expenses, including those that are not reimbursed by their employer. The consultation closed on 10 July 2017.

The Government published a summary of responses in December 2017.

Feedback from stakeholders

  • There is little appetite among respondents for significant reform. The rules on the taxation of employee expenses are well-established and employers are used to operating within the existing framework. Most respondents indicated a desire for a period of stability without any major changes in the rules.
  • Employers are used to the current rules, but the process of engaging with the system can be burdensome. For example, many employers have to keep receipts in order to meet their tax compliance obligations. A number of respondents felt this was burdensome and often disproportionate for smaller expense claims.
  • Individual employees face challenges in understanding and engaging with the expenses system. Most respondents said that the system for claiming relief on non-reimbursed expenses can be difficult to navigate. This can make it hard for employees to understand what expenses they are entitled to claim on and how to go about doing so. Respondents suggested improvements to HMRC’s information, guidance and online administration.
  • Broadly, the rules are still fit for purpose in the modern economy and reflect the expenses employees have today. Respondents who said that this was not the case often attributed this to changes in the expenses employees incur for travel and subsistence, an area that featured heavily in responses. In particular, some thought that it has become more common for employees to work between several different offices or bases, and to work from home.
  • Respondents did not agree on a definitive cause for the recent increase in Exchequer cost for non-reimbursed expenses and the number of employees claiming this tax relief. However, they did indicate a few reasons that could have contributed. Some thought increased cost pressures for some organisations means that they are reimbursing their employees’ business expenses less generously than before,  leading to more employees with non-reimbursed expenses and therefore more employees eligible to claim tax relief from HMRC. Others suggested that employees’ knowledge of how to claim, although still generally limited, may be improving due to guidance and advertising by third parties.

Summary of Government response

In light of the evidence provided, the Government will approach any reforms very carefully.  The Government announced at Autumn Budget 2017 that it will:

  • consult in 2018 on extending the scope of tax relief currently available to employees (and the self-employed) for work-related training costs, to support lifelong learning and retraining
  • remove the requirement for employers to check receipts when making payments to employees for subsistence using benchmark scale rates from April 2019, in order to reduce the administrative burden on businesses and employees
  • place the existing concessionary accommodation and subsistence overseas scale rates on a statutory basis from April 2019, to provide certainty for employers
  • work with external stakeholders to explore possible improvements to the guidance on employee expenses, particularly on travel and subsistence, and the process for claiming tax relief on non -reimbursed expenses