AAT RESPONSE TO THE HMRC CONSULTATION ON EMPLOYEE BENEFITS AND EXPENSES TRIVIAL BENEFITS EXEMPTION

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1 AAT RESPONSE TO THE HMRC CONSULTATION ON EMPLOYEE BENEFITS AND EXPENSES TRIVIAL BENEFITS EXEMPTION 1 EXECUTIVE SUMMARY 1.1 The Association of Accounting Technicians (AAT) is pleased to comment on the issues raised in the HMRC consultation on Employee Benefits and Expenses Trivial Benefits exemption. 1.2 AAT notes that the subject of the consultation document (condoc) is the introduction, for the first time, of a statutory trivial benefits level and to define what a trivial benefit should be. 1.3 AAT supports the proposal to have a trivial benefits definition which is set out clearly in statute as this affords a level certainty and consistency for all parties to work with. 1.4 AAT supports many of the views and proposals expressed by HMRC, however we have a number of reservations regarding the lack of simplification (para 6.6, 6.8, 6.9, 6.19, 6.21) and the effects the proposed changes might have. In some respects the proposals are likely to increase burdens. 2 AAT MEMBERS EXPOSURE TO BENEFITS IN KIND AND EXPENSES ADMINISTRATION 2.1 Any changes to the rules governing compliance in respect of benefits in kind (BiKs) and expenses administration and management, with the consequent effect on both national insurance (NIC) and income tax treatment is likely to affect a significant proportion of AAT members in a variety of different ways. 2.2 Our members work in accountancy, taxation and payroll and may be administering expenses reimbursements, managing BiKs provision and accounting for these within an accounting system. Furthermore, many will be involved in compliance issues in respect of all forms of transactions involving employees, including the processing of invoices which contain elements of employee administration. 2.3 In addition our members in practice may provide services, advice and guidance to clients who make BiKs available to their employees. 2.4 Our members can often be found working for the smallest of employers and in situations where there will be a disproportionate level of low-paid employees We support many of the proposals that are the subject of this consultation exercise, however we have some reservations as outlined below.

2 3. OBJECTIVE OF THIS CONSULTATION 3.1 AAT notes that the subject of the consultation document (condoc) is the introduction, for the first time, of a statutory trivial benefits level and to define what a trivial benefit should be. 4. CURRENT SITUATION WITH BENEFITS IN KIND AND TRIVIAL BENEFITS 4.1 The taxation of benefits in kind (BiKs) is a complex area. However one of the advantages of the current system is that an employer can look at the entire tax year in a single exercise in order to determine which BiKs give rise to a benefit in kind, or potential benefit in kind and select the appropriate items to be dealt with by PAYE Settlement Agreement or employee returns on P9D and P11D. 4.2 It is at this point an employer, or their agent, could consider whether a transaction is trivial in form and function so that it can be ignored. This process is made much easier if undertaken as an annual return event. 4.3 Historically there has never been a definition of a trivial benefit in kind. Although, some employers, or their agents, have relied upon local agreements to determine the definition and this has ranged from descriptions of types of transaction to some who used a simple 25 level to determine the treatment. 4.5 We consider that it is important to have a trivial benefits definition which is set out clearly in statute as this affords a level of certainty and consistency for all parties to work with. 5 THE CONSULTATION DOCUMENT 5.1 Prior to responding to the questions posed in the condoc we would like to make the following observations ( , below). 5.2 We note the comment in paragraph 2.3 of the condoc that there is currently no minimum cost threshold for the taxation of BiKs and observe that this is not absolutely correct because on the P9D return, in section A1, Expenses payments, it is very clear that amounts totalling 25 or less are not to be reported. Whilst this does not cover all aspects of BiKs for employees, it is this requirement which has led many, including some within HMRC Compliance to use 25 as an unofficial trivial benefits limit.

3 5.3 In addition to amounts totalling 25 or less the same paragraph refers to employer s ability to apply for agreement to exclude trivial benefits. In practice most employers are unaware of the need to apply and do not do so, which means that strictly speaking the employer is not complying with the requirements. Those who do apply tend to be informed that items of 25 or less can be ignored. 5.4 In paragraph 2.7 (condoc) correctly sets out that employers have been concerned over the requirement for them to report BiKs which are trivial in nature. However, many of those who talked to the Office of Tax Simplification (OTS) about this matter stated that employers would still need to gather the required data before being in a position to decide whether a BiK was trivial. We believe that the administrative burden will still, largely remain. 5.5 Paragraph 2.8 (condoc) makes reference to the processing costs incurred by HMRC in respect of BiKs. This coupled with HM Governments Digital by Default agenda suggests that HMRC should consider the feasibility of mandating on-line filing of BiKs returns for all except the digitally excluded. 5.6 AAT would suggest the move outlined in 5.5 (above) would lead to a significant reduction in HMRC s processing costs 6 CONSULTATION QUESTIONS Question 1: Do you agree that these principles should apply to the definition of a trivial benefit? Are there other principles that you think should apply? 6.1 AAT agrees that the definition should be principles based. For example, it should make no difference if the employer arranges for flowers or asks an intermediary (i.e. a florist) to deliver the flowers. 6.2 There are many large and complex businesses where remote managers have delegated authority to provide certain facilities to their staff. We urge HMRC to recognise this fact through ensuring that their published guidance covers the need to share data within an entity in order for it to achieve full compliance. Question 2: What do you think would be an appropriate monetary limit for the definition of a trivial BiK? 6.4 AAT considers 200 to be a suitable value to place on a trivial benefit. In reaching our decision we considered a range of factors. We feel that our proposed figure recognises the fact that the P9D figure of 25 was selected a number of decades ago and since that time its real value has been significantly eroded by inflation.

4 6.5 Furthermore, we are aware that another EU member state 1 that uses a trivial benefit limit of Euro 250 to reduce the burden on employers and to avoid encouraging the submission of forms that would cost more to process than the tax collected. Question 3: Do you agree that a higher cost trivial BiK limit with a lower annual exemption limit would more effectively deliver the Government s intention to simplify the administration of employee BiKs? 6.6 It is the AAT s belief that unless the rules are set to apply to trivial BiKs, irrespective of the total amount of them over a tax year then there is little point in making the change. However, we accept the need for HMRC to try to ensure this measure is applied in a manner which does not adversely affect revenue. Unfortunately, there is a possibility that the proposal could simply over complicate matters to a point where many employers will simply ignore the exemption and report everything. Question 4: Do you think that having an annual cost exemption for each employment for each tax year would mean less administration and fewer reporting requirements for an employer? Question 5: What level do you think an annual cost exemption for each employment should be set at to cover genuinely trivial benefits? 6.7 AAT agrees with the proposal that an exemption applies to each employment and that it removes any requirement for employers to pass on details of trivial benefits to a new employer, either by the P45 or some other statement. 6.8 However, the proposals made at 3.26, 3.28 and the example on page 13 (condoc) for such a complex calculation of how trivial benefits are to be assessed for reporting, or not, completely negates the potential reduction in the administration burden borne by an employer. 6.9 We are concerned employers who decide to voluntarily payroll BiKs might face an even greater administration burden through the need to assess the position on a pay period by pay period basis We also consider there to be scope for variation, and therefore unfairness, for many employees who may have a trivial benefit reported and whereas a colleague in receipt of a similar benefit might not have the same benefit reported. It is for the above reason we consider that limits set at 30 and 75 in the example, are wholly inappropriate. We believe a more realistic limit of at least 200 is required, particularly in the instance of an annual cost exemption. 1 The Republic of Ireland has a small benefits relief of Euro 250

5 Question 6: How many trivial BIKs exemptions do you think should be allowed per employee in a tax year? Question 7: What do you see as the advantages/disadvantages of Option 1 in comparison to Option 2? Question 8: Do you think that an annual cost exemption or an exemption based on the number of trivial BIKs provided would best deliver the Government s intention to simplify the administration of employee benefits? Question 9: Are there any other aspects that you think the Government should take into consideration in finalising its policy on the introduction of a trivial BIKs exemption? 6.11 AAT considers the example of the two trivial benefits at and the second example on page 14 (condoc) to be unrealistic and believes that something closer to five or six would be more appropriate The potential for a reduction in employer administration is diluted through a need for employers maintain and retain records, either annually or pay period by pay period in order to determine whether a single item is trivial or whether there has been a volume to exceed the statutory limits It is not clear from the condoc how the pay period by pay period method, or exemption, will work if an assessment has been made in one month and further data arrives in a subsequent period and which materially changes the position AAT s view is that since employers and HMRC have unofficially been working to a monetary value then continuation of this will at least provide consistency, as long as the proposals in Option 1 are truly made simpler to operate. 7 CONCLUSION 7.1 AAT welcomes the opportunity to debate this matter fully and openly and along with the other consultations on BiKs believe the issue is long overdue for debate. 7.2 AAT supports many of the views and proposals expressed by HMRC, however we have a number of reservations regarding the lack of simplification (para 6.6, 6.8, 6.9, 6.19, 6.21) and the effects the proposed changes might have. 7.3 In some respects the proposals are likely to increase burdens.

6 8 ABOUT THE AAT 8.1 AAT is a professional accountancy body with over 49,600 full and fellow members and 74,000 student and affiliate members worldwide. Of the full and fellow members, there are 4,000 Members in Practice who provide accountancy and taxation services to individuals, not-for-profit organisations and the full range of business types. (Figures correct as at 30 June 2014) 8.2 AAT is a registered charity whose objectives are to advance public education and promote the study of the practice, theory and techniques of accountancy and the prevention of crime and promotion of the sound administration of the law. 8.3 In pursuance of those objectives AAT provides a membership body. We are participating in this consultation not only on behalf of our membership but also from the wider public benefit perspective of achieving sound and effective administration of taxes. 8.4 Thank you for the opportunity to respond to the HMRC consultation document on Employee Benefits and Expenses Trivial Benefits exemption. Further engagement If you have any questions arising from our submission or would like to discuss any of the points in more detail then please contact the AAT at: consultation@aat.org.uk and aat@palmerco.co.uk telephone: Aleem Islan Association of Accounting Technicians 140 Aldersgate Street London EC1A 4HY

AAT RESPONSE TO THE HMRC CONSULTATION ON OFFICE OF TAX SIMPLIFICATION: REVIEW OF UNAPPROVED SHARE SCHEMES

AAT RESPONSE TO THE HMRC CONSULTATION ON OFFICE OF TAX SIMPLIFICATION: REVIEW OF UNAPPROVED SHARE SCHEMES 1 INTRODUCTION 1.1 The Association of Accounting Technicians (AAT) is pleased to comment on the