British expats still paying tax in the UK but working overseas are in for an expenses and benefits shake up.
The Office of Tax Simplification (OTS) is recommending the piecemeal system that has mushroomed over the past 60 years or more is ripe for a complete overhaul.
The OTS castigates the current system as unnecessarily complex, impenetrable and unworkable.
In a report to the Treasury, the OTS highlights some specific areas for review, including:
- Deducting income tax and national insurance at source by including benefits in payroll
- Axing the £8,500 higher paid worker threshold set in 1979
- Looking at areas where payroll and national insurance rules overlap or conflict
Filing Form P11d benefits and expenses forms every July with HMRC may also be abolished if the OTS recommendations are followed.
Business expenses targetted
The main expenses targetted by the OTS are accommodation, travel, subsistence and termination payments.
All of these are key benefits for British resident taxpayers working overseas and changing the way they are taxed could significantly affect pay packets.
The OTS explains that these changes would take some time to implement, but has nominated 43 quick tax fixes that will make claiming and administrating business expenses easier.
These include bringing income tax and national insurance rules together on rates over the 45p a mile suggested by HMRC.
Forms also face a redesign and many expenses will have an automatic dispensation, which means they do not need reporting to HMRC on the P11d.
The business expenses review affects around 4 million workers and 300,000 employers.
Tax rules too complicated
The OTS says their work looking into the taxation of business expenses is only at the halfway stage.
After consideration by the Treasury, any changes will be announced by the Chancellor in Budget 2014.
John Whiting, Tax Director of the Office of Tax Simplification said: “The system isn’t working. Too many people do not understand what they can claim or not claim – and if they do claim, whether they need to pay tax or not.
“Everyone says the rules are too complicated. We want to inject some logic and simplicity into the system while reducing the millions of P11ds that are filed each year, which cost businesses and the HMRC time and money to process.
One of our key objectives is making sure the system reflects today’s working environment: evidence suggests that it is outdated in a number of areas. There are some big questions we need to examine, but in the meantime we have also identified some small quick wins which we think would help.
