HM Treasury is now analysing feedback to its call for evidence on the current tax rules for employee expenses amid its claim that tax reliefs on expenses, which include mileage claims, costs the Exchequer £800 million a year with a 25% increase in claims between 2009-10 and 2014-15.
The government says it has no plans to remove the relief on employee expenses, but given the size and importance of the relief, it wants to understand the use of the relief better.
The consultation, which concluded this month, was signalled in the spring Budget when the government said it was considering how the tax system could be made fairer and more coherent, including by looking at the taxation of benefits-in-kind and employee expenses.
The consultation document highlighted both Approved Mileage Allowance Payments (AMAPs) and business travel and associated expenses among commonly claimed expenses and sought views on current employer practices on employee expenses, current tax rules on employee expenses and the future of employee expenses.
Employees that drive their own cars on business are able to claim tax free up to 45p a mile for the first 10,000 business miles and 25p per mile thereafter. Many employers pay a lower mileage reimbursement rate, leaving employees to claim the difference through their tax return which is a cost to the Exchequer.
Similarly, HM Treasury may also look to eliminate claims for tax relief on Advisory Fuel Rates that were paid by employers at a sum lower than the allowed rate when reimbursing company car drivers.
Industry experts suggest that the implications for the fleet industry of revoking travel expenses will be dramatic.
Despite the government saying that it had no plans to remove the relief on employee expenses, some experts have suggested HM Treasury wanted to eliminate claims for tax relief on expense costs that either weren’t reimbursed by employers or were reimbursed at less than the relevant Advisory Fuel Rate or AMAP rate.
Three years ago a report by the Office of Tax Simplification (OTS) suggested that travel and subsistence expenses should be allowable only if reimbursed by the employer.
Whatever the government decides it is clear that company expenses are a looming challenge for businesses. With many businesses offering cash alternatives to company cars, which potentially exacerbates the expenses issue for the government, what it decides to do could have a major impact on corporate fleet, travel and subsistence policies.
For example, if the OTS recommendation was adopted, the shock would be profound. From a fleet perspective, all drivers would want to be reimbursed for fuel and mileage at the full-scale rates since they could no longer claim tax relief if paid less.
It would also entail more administration for businesses because employees would take care to put every scrap of travel costs through the expenses process, knowing that they would not be able to claim tax relief on non-reimbursed costs at the end of the tax year.
Experts typically suggest that flat rate expense allowances were beneficial provided they were set at a realistic level. They also mean less paperwork for drivers, employers and HM Revenue and Customs as realistic flat rates resulted in fewer claims for tax relief at year-end.
The government says it will use the information gathered from the call for evidence to inform potential future policy developments. It could be that any new measures are announced in the Autumn Budget.