The Chartered Institute of Taxation (CIOT) has called for tax exemptions to apply equally whether a benefit is paid for directly by the employer or reimbursed to employees at a later date.
Under current rules, a certain range of benefits are exempt from tax on the employee if paid for directly by their employer, or via a voucher scheme arranged by the organisation – known as ‘benefits in kind’. However, if the same benefits have been paid for by the employee and later reimbursed, that reimbursement is taxed as part of the employee’s earnings.
The CIOT said that the system should be realigned so that tax status is defined by what is being bought, not who is paying for it, adding that this would considerably simplify the system for all involved.
This would particularly affect those dealing with ‘trivial benefits’, namely ones where: the cost of providing the benefit does not exceed £50, the benefit is not cash or a cash voucher, the reward is not an element of the employee’s contract, salary sacrifice arrangement, or in recognition of success in their employment duties.
The CIOT made particular reference to flu jabs, where those provided in office or via a voucher, are eligible for the trivial benefit exemption. However, an employer which might not be able to afford the cost of hosting in-house or accessing vouchers, could instead reimburse staff who pay themselves, but this arrangement would not benefit from the same exemption, despite ultimately being the same arrangement.
Colin Ben-Nathan, chair of the Employment Taxes Committee at the CIOT, said: “Whether a benefit-in-kind or expense is tax exempt should be determined by its nature, not whether the employer directly incurs the cost or reimburses an employee for costs the employee has incurred.
“This difference in tax treatment can particularly affect smaller employers who may find it harder to set up corporate accounts or enter into voucher agreements with suppliers. We think this difference should be removed so that employer reimbursements are treated similarly to directly provided employer benefits.”
Matthew Rowbotham, partner and head of the rax, rewards and incentives group at law firm Lewis Silkin, told Benefits Expert: “The benefits-in-kind regime is complicated enough without the law drawing arbitrary distinctions between the different ways in which a benefit might be provided.
“The CIOT recommendation is an easy simplification to implement so we hope it will be taken up. If the law is changed in this way, businesses will still need to keep appropriate records to justify any tax-exempt reimbursement.”