CIOT calls for equal tax treatment of employee benefits

Tax exemptions should apply equally to employees where the cost of benefits such as flu jabs is reimbursed by their employer as where their employer provides it directly, says the Chartered Institute of Taxation (CIOT).1

Under current rules, a range of “benefits-in-kind” are exempt from tax on the employee if they are paid for directly by employers, or via a voucher scheme arranged by the employer. However, if the same benefits are paid for by an employee and later reimbursed by their employer, the reimbursement is taxed as part of the employee’s taxable earnings.2

CIOT has called for the system to be aligned so the tax status of benefits depends on what is being bought, not who is paying for it. It says this will “considerably simplify life” for all involved, with so-called “trivial benefits”3 an example of where the CIOT considers there is undue complication.

 

Colin Ben-Nathan, chair of the CIOT’s Employment Taxes Committee, 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.”

Under current rules, a trivial benefit provided by an employer is exempt from tax as employment income if:

  • the cost of providing the benefit does not exceed £50
  • the benefit is not cash or a cash voucher
  • the employee is not contractually entitled to the benefit
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
  • the benefit is not provided pursuant to a salary sacrifice arrangement

For example, there will be no tax charge on employees where employers arrange flu jabs at work or provide flu jab vouchers that employees can redeem at a surgery, provided the cost is no more than £50 and the trivial benefit exemption applies. However, the exemption will not apply where a smaller employer, who cannot afford the cost of having a nurse visit their premises or is unable to obtain flu jab vouchers, instead reimburses employees who pay for a jab themselves.

 

Colin Ben-Nathan continued:

“We think that the various exemptions for ‘provided’ benefits should be reviewed so that they also apply when employees incur the cost and are later reimbursed.  This will considerably simplify life for businesses, employees and HMRC.”