Formal consultation response from the Chartered Institute of Payroll Professionals and the
Association of Accounting Technicians in respect of the Office of Tax Simplification; Review of
employee benefits and expenses; interim report
Organisation response to be submitted to the Office of Tax Simplification
Date of submission:
Author: Karen Thomson, and Brian Palmer
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Dear Sirs
By Email
Introduction
The Chartered Institute of Payroll Professionals (CIPP) and the Association of Accounting
Technicians (AAT) are grateful to have the opportunity to comment on the interim report by the OTS
which reviewed employee benefits and expenses. We are pleased to be able to feed into OTS’s work
and offer support and assistance with further work in this area.
This response is to provide feedback to the OTS from accounting and payroll professionals who often
process employee benefits and expenses. The CIPP and AAT carried out a joint survey with its
members to understand the views from both professions.
Summary of key findings:
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The payroll and accountancy profession both agree that there are some benefits that shouldn’t
be viewed as benefits for tax and or NICs purposes; the most popular was any form of health
care. The main reasons provided are; employers help to get people back into work after
sickness thus avoiding the need for welfare benefits and it can offer support to the NHS.
Another popular benefit highlighted was gym provision where paid for by the employer;
Payrolling was supported by both professions, however those represented by the CIPP
supported this option by a higher percentage;
Abolition of Class 1A NICs was supported by just over half of the respondents;
If Class 1A NICs was to remain in place then 76% felt it should be processed via the payroll;
Just over half of respondents supported abolition of the £8,500 threshold but of those who did
not 37% said the limit needed to increase;
Nearly 81% agreed that benefits in kind should be treated equally, regardless of how they are
provided;
68% believe a thorough review of benefits in kind is needed;
81% believe that the tax treatment of benefits in kind should be treated equally regardless of
how the provision has been provided;
84% agree that the starting point for a review of the alignment of tax and NICs sits with
benefits in kind;
67% believe the government should review the fairness between self-employed versus
employed treatment in respect of the tax system. However it should be noted there were many
opinions that raised concerns this action would benefit the employed over the self-employed;
Nearly 71% supported a review of the tax system in respect of ease for both small and large
businesses. However concerns were raised that any changes needed to benefit the business
and not the government;
There was a lack of conclusive evidence around the capping of trivial benefits. However of
those that did give feedback the amounts varied from £100 to £5,000 with small employers
tending to favour the higher de-minimus;
Whether a radical approach to benefits in kind was needed caused mixed opinion. Those who
employed more than 50 employees were more supportive of a radical approach than those
with fewer than 50 employees;
There was little support for benefits being viewed as cash as comments suggested many
employers would just remove benefits and pay additional remuneration;
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Unsurprisingly nearly 61% did not support the suggestion of employer aggregated tax on
benefits;
Nearly 61% did support benefits being taxed at the same rate if a proper review was
undertaken and the tax rate was fair. Some did however comment the higher rate tax payers
should still pay the “higher rate”;
The majority agreed that if a thorough review of the benefits in kind taxation system took place
in respect of what was really a “benefit”, then as long as the calculation was fair and easy to
understand all benefits should be taxed at the same rate;
65% supported one rate of tax calculation for benefits in kind regardless of how it was
provided;
Less than half of respondents felt PSAs should allow any amount/benefit to be included.
Those that didn’t support this were concerned with the distortion of income between small and
large employers;
More than 86% supported a self-dispensation process;
All but one of the “quick wins” was supported by the respondents. The exception was a
majority that didn’t know whether or not to allow car fleet operators to buy multi-year road user
licenses; this is likely to be due to the fact it wouldn’t affect the payroll or accountancy sectors.
Conclusion
The CIPP and AAT support the findings of the OTS Interim report and both are willing to support the
OTS in its future work in order to influence government to implement its recommendations and or
further consultation work.
Yours faithfully
Karen Thomson MSc FCIPP, Associate Director of Policy, Research & Strategic Visibility
Brian Palmer, AAT
Should you require clarification of any of the points that have been made in this response, please do
not hesitate to contact me or another member of the Policy and Research Team.
Contact details:
Associate Director of Policy, Research, and Strategic Visibility
karen.thomson@payrollprofession.org
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Contents
Introduction ..........................................................................................................................................2
Summary of key findings: .....................................................................................................................2
Conclusion ...........................................................................................................................................3
The CIPP and the AAT research ..........................................................................................................6
Membership statistics .......................................................................................................................6
Industry sector ..................................................................................................................................6
Employer size ...................................................................................................................................7
Payrolling of benefits in kind .............................................................................................................8
AAT responses ..............................................................................................................................9
CIPP responses ............................................................................................................................9
Class 1A NICs and payrolling .........................................................................................................10
Class 1A through the payroll ...........................................................................................................11
Review of benefits in kind needed ..................................................................................................12
£8,500 threshold .............................................................................................................................13
Benefits in kind to be subject to the same tax treatment regardless of how it is provided ................14
Review of tax and NICs treatment as a starting point......................................................................15
Self-employed v employed..............................................................................................................16
Review of the tax system for both large and small businesses........................................................17
Trivial benefit cap............................................................................................................................18
Radical approach required? ............................................................................................................19
Benefits to be treated as cash.........................................................................................................20
Employer only aggregated tax ........................................................................................................21
All benefits taxed at the same rate? ................................................................................................22
One method of calculating tax due..................................................................................................23
PSAs ..............................................................................................................................................24
Self-dispensation process ...............................................................................................................25
42 Quick Wins....................................................................................................................................26
Exception........................................................................................................................................27
CIPP company information ................................................................................................................28
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AAT Company information .................................................................................................................29
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The CIPP and the AAT research
The CIPP and AAT carried out a joint survey to understand the views of both the accountancy and
payroll profession on employee benefits and expenses. The survey was also publicised via the CIPP
LinkedIn page to obtain views of payroll professionals who are not members of either institute. The
survey was only available for a short time due to the OTS time constraints. There were in total 47
respondents; 12 who are members of the CIPP, 34 who are members of the AAT and 3 who are not
members of either institute. Two members indicated they were members of both AAT and the CIPP.
Membership statistics
Industry sector
Due to the respondent majority belonging to AAT, the majority of responses were from the
accountancy sector. The CIPP responses encompassed a number of other sectors. Just under 9%
of responses were from those offering outsourced payroll services.
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Employer size
Responses were received from a broad range of employers; however the largest number received at
just under 19% respectively were received from those employing less than 10 employees, between 51
and 250 employees and between 1001 and 5000 employees.
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When asked whether there are some benefits that perhaps shouldn’t be viewed as “benefits” 21%
said no, 42% answered maybe and 36% stated yes. The opinion from the payroll and accountancy
profession was broadly the same when responding to this question. The respondents highlighted the
following as benefits that shouldn’t be viewed as “benefits”:
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Healthcare was most cited, with reasons including “it should be viewed as a benefit to the
government as it helps employees get back to work sooner", thus ensuring they do not go on
to receive benefits from the State and could reduce the strain on the NHS”.
Another point made was that when employers provide healthcare it can often reduce the
employer health insurance subscription costs. Healthcare in the form of complimentary
therapy such as physiotherapy was also recommended to be excluded from being viewed as a
benefit;
Loans to employees under £5,000; it should be noted that both the CIPP and AAT recognise
this limit is to be increased to £10,000 from April 2014;
Incidental expenses when abroad being limited to just £10 was also criticised as insufficient
when taking into account items such as laundry costs and rental of movies (due to limited
English TV channels being available);
Gym membership, again viewed as encouraging a healthier workforce;
The round-sum allowance limits, especially when residing with family and or friends rather
than putting the company to the high London priced hotels;
The definition of trivial benefits needs to be reviewed with a fixed sum being viewed as a nontaxable benefit.
Payrolling of benefits in kind
Nearly 59% of respondents indicated that they would prefer to payroll benefits in kind versus nearly
28% who would prefer to continue with the P11D process. Whilst not significantly different, the views
between the payroll profession and the accountancy profession should be recognised. The majority
of AAT and the CIPP respondents cited they would prefer payrolling; however the AAT majority was
47% versus 32% for current P11D process (21% didn’t know), compared to the CIPP members
whose majority was nearly 73% for payrolling versus 27% for the current P11D process.
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AAT responses
CIPP responses
Comments in respect of payrolling consisted of the following key points:
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Acknowledgement that any changes to the reporting system would be viewed as an additional
administration burden on the small business;
The P11D process is time consuming for employers and often generates tax code queries to
the payroll office;
Payroll service providers highlight that, should there be a change, many employers might not
realise something is a “benefit” and should be reported through the payroll;
Benefits are viewed as income and therefore should be processed as such through the
payroll;
One member reported they currently payroll benefits in kind but find it an irritant that they must
also process P11Ds with a nil tax value;
A concern was raised in that if payrolling were a voluntary option, the impact on an employee’s
tax affairs could be substantial leaving them exposed to the prospect of double taxation
occurring where the employee moves between jobs where one employer “payrolls” benefits
and the other does not. The CIPP and AAT support this concern.
Class 1A NICs and payrolling
Just over half of the respondents would like to see Class 1A abolished, with benefits being subject to
Class 1 if payrolling were to be introduced, compared to 31% who said they would prefer to retain
Class 1A with 17% not knowing. The percentage split between the accountancy professionals and
payroll professionals were not dissimilar:
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0
Answer
No
Yes
Don’t know
CIPP %
27
64
9
AAT %
31
47
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The main comments made in respect of abolition of Class 1A was that any Class 1 should be an
employer only contribution; with the suggestion that the percentage rate could be lowered. One
respondent observed this would require setting up payroll elements to ensure only the employer paid
NICs which might be more of a burden.
Class 1A through the payroll
Unsurprisingly nearly 76% felt that if Class 1A were to remain in place it should be processed via the
payroll rather than be a separate transaction. This opinion was shared by both those who are in the
accountancy profession and the payroll profession. Comments however were made in respect of the
capability of payroll software.
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Review of benefits in kind needed
Nearly 68% believe a thorough review of benefits in kind is required with 25% saying that perhaps a
review is needed. This view was shared by both professions.
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£8,500 threshold
Just over half of respondents indicated that they would support abolishing the £8,500 threshold,
however just over 44% did not, with 37% of those stating the limit needed to increase. This view was
shared by both professions but it should be noted those responding as AAT members were much
more divided between supporting abolishment and increasing the limit over those who responded as
CIPP members.
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Answer
Yes
No and current limit acceptable
No but the limit needs to increase
Maybe
Don’t know
CIPP %
63.6
0
36.4
0
0
AAT %
41.2
11.8
41.2
5.9
0
Many of those who provided additional comments stated that they believe the current threshold is
outdated and that it should either be brought in line with the personal allowance, or higher.
Others commented that most employees would earn above the rate of £8,500 so it is no longer
relevant, with some stating they do not complete the P9D process anyway and issue P11Ds to all.
The results and comments would appear to support OTS’s view this area should be consulted on
further and not form part of this specific research.
Benefits in kind to be subject to the same tax treatment regardless of how it is provided
Nearly 81% agreed that benefits in kind should be treated equally regardless of how the provision is
delivered. The most cited inequality of treatment in the comments provided was the difference
between private gym membership being taxable and the provision of a Head Quarters gym facilites
being non-taxable., especially for those who work remotely from their employer’s HQ, being taxed if
their subscriptions for remote gym facilities were paid by their employer f.
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The 7.7% of those who disagreed with the view that all benefits should be treated the same,
regardless of how it was provided, were from the AAT membership representation.
Review of tax and NICs treatment as a starting point
84% of respondents agree that a review of tax and NICs should be the starting point for aligning the
tax and NICs system. 4% disagreed with this suggestion; they were from the payroll profession. The
concerns expressed were in respect of the government’s intention i.e. will they look to put NICs on all
benefits in kind, when the respondents believe some benefits should be removed altogether?
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Self-employed v employed
Nearly 67% thought that the government should review the fairness of the tax system between those
who are self-employed and employed. This view was shared across both professions.
Of the feedback provided under additional comments the view was that there are differences between
the two groups which should be maintained, with the key difference being employment status. Some
felt that fairness would mean disadvantages to the self-employed rather than benefits for the
employed.
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Review of the tax system for both large and small businesses
Unsurprisingly nearly 71% support a review of the tax system to make it easier for both large and
small employers with the majority of support being from AAT members. One comment received was
that the large businesses would not need a review except to identify areas where they were possibly
abusing the tax system.
There were some fundamental concerns from those who responded which are supported by the CIPP
and AAT namely:
 Any changes made would need to be for the benefit of business and not the government.
Some respondents commented that whilst a small business may have the means to
understand some benefits, for example salary sacrifice, they do not have the resource to
implement such schemes;
 Better support for small businesses to help them structure their remuneration packages.
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Trivial benefit cap
The views were extremely divided around whether a cap should be introduced for trivial benefits. The
majority (41.7%) said “maybe” with 33.3% saying “yes”. Of those saying yes the views were shared
across both professions. The cap amounts offered from respondents varied from £100 to £5,000 with
the majority suggesting a de-minimus of £250. Those who represented employers with fewer than 50
employees suggested amounts higher than £250.
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Radical approach required?
Responses were mixed as to whether a radical approach to the way benefits in kind are operated
should be taken. 34.8% said “yes” with the same amount saying “maybe”.
Those employing more than 50 employees supported this suggestion much more than those with
fewer than 50 employees. Feedback suggests there is some appetite for this approach as it would
show employees the true amount of tax when combining NICs with PAYE especially when S2P is
abolished for DB schemes. Some offered it would be a good time to sever the link between NICs and
State Benefits.
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Benefits to be treated as cash
The majority of responses (47.8%) did not agree that all benefits should be treated as cash, however
30.4% said “maybe”. This view was shared across both professions, but those who employ more
than 50 employees showed a higher average percentage of disagreement compared to those who
represent fewer than 50 employees.
Comments received in respect of this included:
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Applying Class 1A through the payroll would be a better solution;
Would support this suggestion if a number of “benefits” are removed from being a benefit;
Unrest around HMRC’s view and whether fair or legal and potentially a “money-making game”
for the government;
Employers might stop offering “benefits” and instead opt to increase salaries.
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Employer only aggregated tax
Unsurprisingly nearly 61% did not support the suggestion of one aggregated tax that should be levied
on the employer only.
The majority of the comments received suggest this approach would increase costs and would even
act as a deterrent to employing people further. Some suggest employers would stop offering any
benefits. Others believe the employees should share the cost of benefits received. These views
were shared across both professions and both small and large employers.
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All benefits taxed at the same rate?
If a review is to be undertaken to determine what was truly a benefit nearly 61% supported the
suggestion that the tax rate should be the same for all as long as the rate was fair and the calculation
rationale was easy to understand. There were differences of opinion around the “higher earners”
where it was felt they should continue to pay at a higher rate. It was noted that expenses should not
be subject to tax, only benefits should e.g. company car. These views were shared equally by both
professions regardless of employer size.
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One method of calculating tax due
65% supported one method of calculating tax due on a benefit in kind regardless of how it was
provided e.g. via salary sacrifice. A slightly higher percentage of those responding as AAT members
did not support this suggestion along with a slightly higher proportion of those representing those
businesses employing fewer than 50 people. One comment made was that salary sacrifice schemes
should be allowed to continue, another stated the benefit in kind needs to be taxed in the same
manner as any other benefit subject to different rules.
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PSAs
45.5% of respondents believe HMRC should allow employers to include any item under a PSA, with
nearly 41% saying maybe or don’t know. There were some concerns around income distortion
between the large and small employers.
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Self-dispensation process
More than 86% said they would support the introduction of a dispensation process that allowed the
employer to self-dispensate using clear guidance of what is and isn’t permitted from HMRC. There
was huge support with comments made that the professions have been asking for this since the
1990s.Those who didn’t support a self-dispensation process were members of the CIPP and were
from those representing large employers. A concern was also raised in that it may leave room for
employer error leading to penalties through their misunderstanding of the system.
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42 Quick Wins
The OTS interim report identified 42 potential quick wins. The CIPP and AAT sought opinion on each
of these, unfortunately due to a technical fault a number of questions were duplicated, but all were
included.
With the exception of the following item both professions, in the majority of responses, supported the
quick wins identified by the OTS interim report.
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Exception
Benefits – cars - Allow car fleet operators to buy multi-year road fund licences
Additional comments were received in respect of the OTS report and around benefits in kind in
general. Overall respondents were supportive of the OTS findings and recommendations.
Comments were made in respect of HMRC’s ability to operate the system along with insufficient
guidance being available to the small business community.
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CIPP company information
The Chartered Institute of Payroll Professionals (CIPP) was established as an official industry body in
1985 when the Institute of British Payroll Managers (IBPM) was formed. In 1998, the IBPM merged
with the Association of Pensions and Superannuation Administrators (APSA) to form the Institute of
Payroll and Pensions Management (CIPPM), which became the Institute of Payroll Professionals in
September 2006 and was granted Chartered Status in November 2010. The CIPP is the Chartered
Institute for payroll professionals in the UK and currently has in excess of 5,000 members enjoying a
range of benefits. In addition, the CIPP is the UK’s leading provider of education for payroll, and has
a Pensions Faculty responsible for delivering qualifications and membership services to those
responsible for public sector pensions.
The mission statement of the CIPP is:
Leading payroll and pension professionals through education, membership and recognition
Representation
The views of the Chartered Institute are sought and valued by Government departments and other
organisations, as witnessed by its representation on bodies ranging from HMRC, and other external
Employer Consultation Groups. The Institute, through its Policy team headed up by Karen Thomson,
has been responding to consultation documents and attending consultation meetings for more than
16 years.
As a result of this sustained effort, we have created sound working relationships with the DWP,
HMRC, BIS and other Government departments.
The Chartered Institute operates an Advisory Service staffed by professionals able to provide accurate
and authoritative advice on a wide range of topics. It also runs national forums which allow members
direct contact with representatives from HMRC and other relevant bodies and also provides a forum
for members to input and feedback on the CIPP’s policies.
Education
The Institute validates and controls a wide range of professional qualifications in both the payroll and
public sector pensions sectors, from Foundation Degree level to Masters Level. CIPP Education, a
wholly owned subsidiary of the CIPP, it delivers the qualifications and provides tutors at officially
recognised standards. CIPP Education also runs a comprehensive range of short training courses
throughout the UK.
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Events
The CIPP also runs a series of conferences throughout the year, culminating in the Annual Payroll &
Pensions Conference and Awards Ceremony.
AAT Company information
The Association of Accounting Technicians (AAT) has over 50,300 full and fellow members and
71,000 student and affiliate members worldwide. Of the full and fellow members, there are 3,800
Members in Practice (MIPs) who provide accountancy and taxation services to individuals, not-forprofit organisations and the full range of business types.1
AAT is a registered charity whose objectives are to advance public education and promote the study
of the practice, theory and techniques of accountancy and the prevention of crime and promotion of
the sound administration of the law.
In pursuance of those objectives AAT provides a membership body. We are participating in this
consultation not only on behalf of our membership but also from the wider public benefit perspective
of achieving sound and effective administration of taxes. The issues raised in this consultation may
affect the wider business sector and the economy.
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Figures correct as at 30 April 2013
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