The UK government has launched a consultation to reform the way employees get tax relief on allowable expenses.

Currently employers apply to the HMRC for a dispensation, this allows the employer to pay specific expenses to their employees without having to deduct income tax and national insurance and report them to the HMRC.  However due to concerns about the misuse of expense payments this dispensation is not granted to all employers.  In this instance everything is reported and taxed and employees have to reclaim this back from the HMRC at the end of the year.

In a recent report from the Treasury’s Office of Tax Simplification it recommended that this system be replaced with a straightforward exemption for qualifying expenses.  This allows employers to determine whether an expense payment is taxable or not.  This would grant all employees relief on legitimate expenses, although there would be checks by the HMRC on the employer’s records.  This recommendation has been accepted and a consultation paper has been issued to deal with issues such as possible abuse of this system by setting out the types of records employers must keep and the checks it must do on employee expense claims.

This consultation is expected to close on the 9th September 2014.