Following the recent consultation covering the taxation of employee expenses (as announced in the Autumn 2017 Budget), draft Finance Bill 2018-19 contains proposals to amend some of the existing rules concerning travel and subsistence payments.
BSRs and OSRs
Currently, there are no income tax or NIC implications where an employer uses HMRC’s approved benchmark scale rates (BSR) to pay or reimburse employees’ qualifying expenses incurred when travelling for work. The BSRs are designed to cover modest meal allowances with which employers can reimburse their staff for food and drink costs. An employer may choose to pay less than the approved amounts, with no tax or NIC implications, but if a higher amount is paid, the excess will be subject to tax and NICs.
Although there will be no charge where BSRs are used, HMRC currently require employers to undertake certain verification procedures. For employers with many employees regularly undertaking business travel, the task of checking and maintaining expenses records is likely to be extremely burdensome. Proposals in Finance Bill 2018-19 aim to ease the burden by removing the requirement to operate a receipt checking regime for small set amounts under BSR from 6 April 2019.
Employers can also use HMRC’s overseas scale rates (OSRs), which are designed to include an element for accommodation and subsistence, when employees undertake overseas business travel. The OSR amounts are not currently approved by statute and the informality of the system has created uncertainty for some employers. It is therefore HMRC’s intention to bring OSRs into legislation from April 2019. Similar to BSR, if enacted, there will be no requirement for employers to operate a system for checking employees’ expenditure but they will need to ensure the employees are undertaking qualifying travel.
OpRAs – cars and vans
The Bill contains proposals which are expected to affect a small number of the one million or so individuals who are provided with a company car or van through Optional Remuneration Arrangements (OpRA) (formerly known as salary sacrifice arrangements).
Under OpRAs, the amount foregone is compared to the modified cash equivalent of the car or van benefit charge. The greater value is reportable for tax purposes. When the governing legislation (in ITEPA 2003) was originally introduced, the accompanying explanatory note was explicit that “connected costs” were regarded as part of the car (or van) benefit charge. However, when the OpRA legislation was introduced in the Finance Act 2017, an oversight meant that no provision was made to ensure the calculation of the amount foregone for a taxable car or van should also include any connected costs. This meant the value of connected costs were not included in the calculation of the amount foregone, whereas they were deemed to be included within the modified cash equivalent rules – the comparison was not, therefore, on a like-for-like basis.
In addition, under the normal rules for calculating the car benefit charge, capital contributions are automatically subject to pro-rata if the car is made available for only part of a tax year. Similar provisions were not included in the Finance Act 2017 for calculating the relevant amount. This means that currently, the amount deductible for capital contributions where the car is available only for a part year is overstated.
Finance Bill 2018-19 is the first opportunity that the government has had to put right these anomalies. If enacted, the amendments will take effect from 6 April 2019.
Employer-provided charging points
Legislation is to be introduced to exempt from income tax and NICs, any liability arising from the provision of charging facilities (including electricity) to employees recharging all-electric or plug-in hybrid vehicles at or near the workplace, where facilities are made available generally to the employer’s employees. It does not cover reimbursements for charging elsewhere paid for by the employee. This proposal will not apply to taxable cars and vans (chargeable under the car or van benefit charge respectively). These are taxable as benefits in kind, and the provision of charging facilities and electricity are treated as connected costs already subject to a separate exemption. Employers should note that, if enacted, this measure will apply retrospectively from 6 April 2018.