EMPLOYEE BENEFITS AND EXPENSES TRIVIAL BENEFITS EXEMPTION

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1 EMPLOYEE BENEFITS AND EXPENSES TRIVIAL BENEFITS EXEMPTION Response by the Association of Taxation Technicians 1 Introduction 1.1 The Association of Taxation Technicians (ATT) is pleased to have the opportunity to respond to the consultation document Employee Benefits and Expenses Trivial Benefits exemption ( the Consultation ) published by HMRC on 18 June The Consultation concerns the Government s intention to introduce a statutory exemption for trivial benefits in kind ( BIK ) with the aim of removing a great deal of the administration and cost involved in the system as it currently stands. The proposals should not only be of benefit to employers but also to HMRC. We provide answers to the questions raised in the Consultation in section 2 below. 2 Our responses to the questions 2.1 Question 1: Do you agree that the principles set out in paragraph 3.2 should apply to the definition of a trivial benefit? Are there other principles that you think should apply? We would make the following comments against each of the principles included in the definition of a trivial BIK at paragraph 3.2 of the Consultation It will not include cash or a replacement for cash such as a voucher or token. We do not accept that vouchers cannot be included within the definition of a trivial benefit. We note HMRC s concern regarding payments of earnings being disguised through the use of vouchers. However, we feel that if there is going to be both a monetary limit per benefit as well as an annual exemption (both discussed later in this reply) then it should not really be possible to disguise any significant amounts of earnings using this exemption. There should be enough safeguards in place. In practice, we believe that many small gifts from employers to employees will take the form of vouchers. Take a wedding gift, for example. Many people now request vouchers as they may already live together so do not want to go down the usual route of having a gifts list. In other instances people generally like to be able to pick their own gift. Even theatres now provide gift Registered in England and Wales Registered Office: 1st Floor, Artillery House, Artillery Row, London SW1P 1RT A company limited by guarantee: Number Registered as a charity: Number VAT Registration: Number

2 tickets so that the recipient can pick their own show rather than receiving tickets to a specific show. To exclude the payment of small value vouchers to employees would result in many actual trivial benefits falling outside of the exemption Any trivial BIK must not be provided on a continual or regular basis across a tax year but should, instead, be a one-off or irregular item. We agree in principle that the same sort of trivial BIK should not be occurring regularly or continually during a tax year (we assume this is what HMRC meant by saying across a tax year). However, if the same type of trivial BIK occurs regularly once a tax year (such as Christmas turkeys or other small Christmas gift) we do not see a problem with these being covered by the exemption. Our comments below in section are linked to our response here There should be no pre-arranged entitlement to a trivial BIK. We do have concerns as to how it will be determined whether there is considered to be a prearranged entitlement. For example, if it is customary practice for an employer to provide employees with a gift when they either get married or have a baby, we wonder whether this will constitute a pre-arranged entitlement in the same way that customary payments in lieu of notice to employees, even where there is no contractual entitlement, can lead to these payments being taxable. If employers have a policy of providing small gifts on employee s birthdays or at Christmas, events which reoccur every year, would this constitute a pre-arranged entitlement? In such cases we believe that it should not be considered as a pre-arranged entitlement but there will need to be clarity in the legislation and guidance to ensure that situations like this are clearly not caught It must be possible for an employer to determine a trivial BIK, and whether any liability arises to tax and NIC in real time. We agree with this principle It will not be possible for any employer to use any trivial BIK exemption in conjunction with salary sacrifice arrangements. We do have reservations regarding this principle. We are concerned that HMRC are attacking salary sacrifice arrangements which they consider are not within the spirit of the legislation. We do not see how these arrangements (where salary is sacrificed to receive exempt benefits or expenses) are any different to other salary sacrifice arrangements. It has long been accepted practice that salary is sacrificed in return for a benefit which is usually not subject to any charge. Common examples of the use of salary sacrifice arrangements are the provision of childcare vouchers, the provision of extra holidays and where an employee sacrifices an amount of pay and the employer makes a contribution to a pension scheme on behalf of that employee in return. P/ATTTSG/Submissions/2014 2

3 These types of arrangements are modern practice. Today, employees want the flexibility in their remuneration packages to be able to build them to suit their personal circumstances. We note that the theme of restricting the use of exemptions with salary sacrifice arrangements crops up again in the consultation on an exemption for paid or reimbursed expenses and are concerned about HMRC raising a general attack on the practice of salary sacrificing as if it is being done for avoidance reasons. We would urge HMRC to hold back on this stance until it has completed its review of remuneration practices and fully understands the position and use of salary sacrifice schemes in today s modern world If a benefit in kind is already covered by a statutory tax exemption then these arrangements will not be disturbed: the trivial benefit in kind exemption will not be necessary for these types of benefits in kind. This is perfectly logical but there may need to be specific guidance to explain whether these should or should not be included when looking at whether an annual exemption has been exceeded. Presumably they should not be included but this should be specifically pointed out in the final guidance. 2.2 Question 2: What do you think would be an appropriate monetary limit for the definition of a trivial BIK? We fully agree that setting a monetary limit would allow certainty and transparency. We think it is acceptable that a trivial BIK should first need to meet the principles of the definition and then have to be an amount less than or equal to a monetary limit to qualify for the exemption. If we were to go with just the principles of the definition and no monetary limit, then there would potentially be scope to manipulate the rules, or at the very least it would involve HMRC having to be more involved in making judgements on situations to make sure they are not abusive. As we are trying to move away from this type of system, a monetary limit would allow HMRC to take a hands-off approach and, combined with the safeguards laid down in the principles of the definition, it should also allow the inclusion of vouchers within the trivial BIK exemption. We do need to be realistic and accept that one-off gifts of, say, a decent bunch of flowers could have a value of around 50 and upwards. Therefore, the monetary limit needs to be set at a high enough level to be worthwhile. We would certainly not expect this limit to be below 50 and we would probably be inclined to consider a limit more in the region of 75. P/ATTTSG/Submissions/2014 3

4 We also suggest that consideration be given to issuing guidance to compliance officers that give him or her the power to overlook a trivial benefit if the gift has only marginally exceeded the limit. Whatever the level of the limit, it will need to be kept under review year on year. We do not agree with setting a monetary limit today that will remain in force for the next twenty years when it has ceased to have any relevance. As such, HMRC will need to ensure that they have the necessary legislative power to increase the monetary limit as and when appropriate. 2.3 Question 3: As set out at paragraph 3.9, 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 employees BIKS? We suggest a monetary limit per benefit of somewhere between with an annual exemption limit of somewhere between , so that it could allow an employer to give three individual small gifts in a tax year, or one maybe two slightly larger gifts. We believe this should be adequate in most cases to fully exempt true trivial benefits and prevent any abuse being made of the exemption. At the workshop held on this Consultation, it was discussed whether an overall annual exemption is actually relevant with the reasons being put forward that one employee may have an exceptional year for receiving benefits from their employer because they have a number of life events happening in the same tax year (wedding, illness, birthday) and having an annual exemption would adversely affect them. Attendees at the workshop also voiced concerns about the record keeping involved with the implementation of an annual exemption. We note these comments but do still believe that having the overriding annual exemption would provide the clarity that is needed to improve the system of dealing with trivial benefits and expenses. Without one, we can only see that employers will need to be constantly reviewing each employee s circumstances and the reasons behind each gift in deciding whether they should all qualify for the trivial BIK exemption. The people actually dealing with the reporting requirements may not be aware of the individual s personal circumstances. For instance, if one gift was in relation to an illness it is likely that HR department did not pass on these details to the payroll department (or whoever is preparing the P11Ds). You would be asking them to make judgement calls on information they may not be privy to. Similarly, HMRC may have to become involved in similar levels of reviewing cases. An annual exemption would be clearer and less work-intensive for all involved. If there are situations such as the employee outlined above, whose gifts would not all qualify for the trivial BIK exemption because they exceeded the annual exemption, then it is always open to the employer to settle the tax on the gifts that are excluded from the exemption via a PAYE settlement agreement. P/ATTTSG/Submissions/2014 4

5 Concerns about record keeping are addressed in more detail at section 2.4 below. 2.4 Question 4: Do you think that having an annual cost exemption for each employment for each tax year as set in Option 1 would mean less administration and fewer reporting requirements for an employer? We believe that an annual cost exemption for each employment will work better than an annual exemption based on the number of trivial benefits provided per tax year. We believe it is consistent with how other exemptions work across the tax system (for instance the inheritance tax annual exemption and the capital gains annual exempt amount are both cost based). We do not think that the extra record keeping should be particularly onerous. Employers will already need to keep records on the monetary value of trivial benefits and expenses to:- be able to calculate the tax and NIC charges in real time and to measure the benefit against the monetary limit which the Government has already said it intends to introduce. 2.5 Question 5: Under Option 1, what level do you think an annual cost exemption for each employment should be set at to cover genuinely trivial benefits? As we have already outlined in section 2.3 we believe the annual cost exemption should be around , based on a monetary level per benefit of Question 6: Under Option 2, how many trivial BIKs exemptions do you think should be allowed per employee in a tax year? This should be based on the number of employments and should not be complicated any further than that. 2.7 Question 7: What do you see as the advantages/disadvantages of Option 1 in comparison to Option 2? We refer back to sections 2.3 and 2.4 in answer to this question. P/ATTTSG/Submissions/2014 5

6 2.8 Question 8: Do you think that an annual cost exemption (Option 1) or an exemption based on the number of trivial BIKS provided (Option 2) would best deliver the Government s intention to simplify the administration of employee benefits? We believe an annual cost exemption method is preferable for reasons already outlined earlier in this reply. 2.9 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? Aside from the issues regarding vouchers and salary sacrifice arrangements already discussed in section 2.1, we would also suggest that HMRC consider dove-tailing the outcome of this consultation with the abolition of the threshold for 8,500. If there can be significant changes in the treatment and record keeping requirements of trivial benefit and expenses then this may help to reduce the number of cases affected by the removal of the 8,500 threshold. It could well be that many employers don t currently consider approaching HMRC to have a benefit or expense paid to an employee treated as trivial because either they perceive the process as too administratively burdensome or the worker is being paid below the threshold so the benefit or expense would not be taxed anyway. When all employees are subject to the same benefit rules this exemption may suddenly become very important to low paid workers as a way of ensuring they do not have to pay tax on infrequent and low value benefits. The promotion of this new exemption to relevant employers will be key in making sure the awareness is out there. 3 Conclusions 3.1 In this response we have set out our responses to the detailed questions asked in the Consultation. We fully agree with the introduction of a statutory exemption for trivial benefits and expenses as a way of simplifying the current system and providing some much needed clarity. We have provided comments on the principles suggested for inclusion within a statuary definition of a trivial benefit and expense. The idea of a having a definition is most welcome. However, as our comments have shown, we feel there is scope to adjust the principles as they stand and, in some cases, (such as the pre-arranged entitlement) further clarification will be needed. It terms of structuring the exemption, we are in support of both an individual monetary limit and an annual exemption which is based on the total cost of trivial benefits provided, as opposed to the number of trivial benefits provided. P/ATTTSG/Submissions/2014 6

7 We have outlined our reasons for this preference and also our reasons for having an annual exemption as we are aware that discussions at the recent workshops have suggested that one may not be required. We would be happy to discuss further any issues raised in this response. 3.2 Contact details: Should you wish to discuss any aspect of these comments, please contact our relevant Technical Officer, Alison Ward, on or at Yours sincerely Yvette Nunn On behalf of ATT Technical Steering Group 4 Note 4.1 The Association is a charity and the leading professional body for those providing UK tax compliance services. Our primary charitable objective is to promote education and the study of tax administration and practice. One of our key aims is to provide an appropriate qualification for individuals who undertake tax compliance work. Drawing on our members' practical experience and knowledge, we contribute to consultations on the development of the UK tax system and seek to ensure that, for the general public, it is workable and as fair as possible. Our members are qualified by examination and practical experience. They commit to the highest standards of professional conduct and ensure that their tax knowledge is constantly kept up to date. Members may be found in private practice, commerce and industry, government and academia. The Association has over 7,500 members and Fellows together with over 5,000 students. Members and Fellows use the practising title of 'Taxation Technician' or Taxation Technician (Fellow) and the designatory letters 'ATT' and 'ATT (Fellow)' respectively. P/ATTTSG/Submissions/2014 7

FINANCE BILL 2015 DRAFT CLAUSES EXEMPTION FROM INCOME TAX FOR TRIVIAL BENEFITS PROVIDED BY EMPLOYERS

FINANCE BILL 2015 DRAFT CLAUSES EXEMPTION FROM INCOME TAX FOR TRIVIAL BENEFITS PROVIDED BY EMPLOYERS Response by the Association of Taxation Technicians 1 Introduction 1.1 The Association of Taxation Technicians