Further consultation on abolition of tax reliefsSaturday, June 11th, 2011
HM Treasury does not have enough information on the reliefs being considered for abolition and is seeking clarification from interested parties on the extent to which they are currently being used.
The Office of Tax Simplification (OTS) is tasked by the Treasury with simplifying tax reliefs and small business taxation (including the IR35 rules).
In November 2010 the OTS published the first ever comprehensive list of the UK’s tax reliefs and allowances on its website, and invited comments and views from those who use them. In total, 1,042 reliefs were listed, including 225 related specifically to income tax.
On 3 March 2011 the OTS published its final recommendations on 155 tax reliefs, a number of which relate to income tax and NICs. Following consideration of the recommendations, HM Treasury and HMRC published a consultation document on 27 May 2011 to obtain views on the removal of 36 specific reliefs. Comments on each of the reliefs are invited from interested parties, with a submission deadline of 31 August 2011. In many cases, there is no clear evidence of how many employers use the exemptions and how many employees benefit from them and the Government hopes that the consultation process will help to identify those who will be most affected by abolition of the reliefs.
There were 15 pay-related reliefs recommended by the OTS for abolition but only the following 7 are addressed in the consultation document.
NICs exemption for certain payments to mariners. This longstanding exemption applies to interim payments of advances of earnings, payments made while sick overseas, and payments made in part to another person. These types of payment are no longer current practice and it is proposed to abolish the exemption from April 2012.
Tax and NICs exemption for provision of meals on cycle to work days. The provision of the first refreshment or meal provided to an employee on a “cycle to work” day is exempt from tax and NICs. The number of employees benefitting from this provision is believed to be low. The value of the relief is minimal and is generally outweighed by the time, effort and cost involved in providing the benefit. Abolition is proposed from April 2013. Employers continuing to provide the benefit would have to report it or include it in a PAYE Settlement Agreement (PSA).
Tax and NICs exemption for late night taxis home after work. If a number of conditions are met, the provision of taxis for employees to travel home after work is exempt from tax and NICs. It does not apply to workers who normally work late, only to those who work later than usual and, even then, if the situation occurs irregularly. The conditions severely restrict the number of employees who can possibly benefit from the relief and there is no data on how many businesses use it. It is believed to benefit the better paid and does not promote fairness. Abolition is also proposed from April 2013, following which all taxi journeys would have to be reported or included in a PSA.
Tax and NICs exemption for the first 15p of luncheon vouchers. The first 15p of a meal voucher provided on each working is exempt from tax and NICs. The exemption was introduced in 1946 when food was rationed and many employers did not provide workplace canteens. An estimated 100,000 employees receive luncheon vouchers. However, the OTS report suggests that the number of employers using the exemption is low and, in any case, the value of the benefit has been eroded by inflation. Abolition from April 2013 is not expected to affect the provision of luncheon vouchers by employers without canteen facilities, but affected basic rate taxpayers could pay up to £12 a year extra in tax and NICs.
NICs exemption for apprentices and students coming to the UK. No Class 1 NICs are paid for the first 52 weeks in the UK by individuals who are not UK residents and who meet specified conditions for the “student exemption” or the “apprentice exemption”. The exemptions date from a time when the UK suffered from a shortage of labour and wished to encourage students from the Commonwealth to come to the UK to do vocational work and acquire skills to help build the economies of those countries. However, current immigration rules give priority to EU nationals. There is no up-to-date information on how many employers make use of the exemption and how many students and apprentices benefit from it. Abolition is proposed from April 2012.
NICs exemption for payments by credit card providers for recovering lost or stolen cards. No Class 1 NICs are due on cash rewards paid by credit card companies to employees of, in particular, retail businesses when they detect lost or stolen credit cards. The exemption does not apply to payments made by employees to their own employees. The original rationale was that the size of the payment did not justify the amount of work involved by the actual employer in accounting for the NICs that would otherwise be due. However, this ‘work reduction’ rationale is now thought to be wrong as the provider of the benefit has to follow special PAYE procedures to account for the tax due. If abolition occurs from April 2012, as is proposed, the credit card companies will instead have to provide details of the payments to the actual employers who, in turn will have to handle the tax and NICs liabilities through the payroll. The extent to which this exemption is used, the value of the payments made, and the likely additional workload for employers are not currently understood.
NICs (Class 1A) exemption for relocation expenses other than tax exempt removal expenses. This exemption only relates to expenses incurred in respect of relocations prior to April 1998 and it is proposed to abolish it by means of the next available NICs Act.
The fate of the other reliefs listed for abolition in the consultation document is not explained. For reference purposes, these other pay-related reliefs are listed below, with a brief explanation of the reasons given for abolition by OTS in the March 2011 recommendations.
- Trade union subscriptions – that part of subscriptions relating to superannuation, death benefits and funeral expenses through a life assurance policy qualifies for relief. The policy rationale is obsolete and the value is negligible.
- Police organisations – as above, for trade union subscriptions.
- Miners’ coal and allowances in lieu of coal – the majority claim the cash rather than coal and the value is minimal. A one-off buyout is recommended.
- Class 4 NICs exemption for divers and diving supervisors – prevents a double charge for NICs as they are treated as self-employed for tax but employed for NICs. The policy rationale is no longer valid.
- Welfare counselling – certain specified counselling facilities are exempt from Class 1A NICs. The benefit is negligible.
- Contracted-out rebate occupational pension schemes (3 separate reliefs) – abolition of contracting out for defined contribution schemes is already legislated, and abolition of contracting out for defined benefits schemes now would simplify the administrative burden.
- Blind person’s allowance – not used by the majority of blind people as they do not have sufficient earnings. Recommended for abolition if it can be replaced by an alternative and equivalent funding route.
- Payment for the benefit of spouse and children – tax relief up to a maximum of £100. The policy rationale is mostly obsolete, the value is negligible, and the number of claimants is very low.