Q: I understand that HM Revenue & Customs is proposing to abolish the £8,500 threshold for the reporting of benefits and expenses on form P11D. What are the implications of this proposed change?
A: HMRC published a consultation document on 18 June 2014 that requested comments by 9 September 2014 on this matter.
When the threshold was first introduced in 1979 the intention was to tax employees with benefits only where the employee was in what was described as ‘higher-paid employment’. Times change, and now anyone earning only £8,500 a year is likely to be below the national minimum wage.
For some years there has been pressure for this threshold to be increased to a more realistic figure. However rather than increasing the threshold the proposal is to abolish it completely so that everyone who has a taxable benefit or expense will have it taken into account in calculating their tax liability.
HMRC points out in the document that the personal allowance for people earning less than £100,000 has increased significantly in the past few years, which should ensure that the lowest-paid workers will still not be required to pay tax on modest benefits and expenses.
HMRC goes on to explain that the driving force behind the abolition of the threshold is tax simplification, and in this case it is easy to see how the system will be simplified. At present, the employer has to calculate the value of the benefits and expenses and add them to the annual rate of pay in order to decide whether or not a P11D is required.
Bringing everyone within the charge would relieve the employer from having to undertake this calculation and would mean quite simply that any employee in receipt of taxable expenses or benefits would require a P11D to be completed by the employer. Just the one form would require completion rather than the current choice of P9D or P11D – there is no mention in the document as to whether an entirely new form would be devised.
So far so good, you might think, but almost hidden away in the document is a two-line note that employers will have an additional liability to pay Class 1A national insurance at 13.8 per cent on the value of benefits-in-kind for employees who are earning £8,500 or less a year, generating an extra yield for HMRC.
There will no doubt be mixed opinions on this consultation, but the proposals will remove the calculation burden from the employer and will create a more level playing field for employees. The fact that it will have the happy side-effect for HMRC of increased revenue may be viewed cynically by some and as a price worth paying by others.
Ben Chaplin is managing director of Taxwise
