The government has announced its response to the review of the work-related expenses scheme in a letter to the House of Representatives. The Government sees no reason to make fundamental changes to this scheme, which all employers have been required to implement since 1 January 2015. However, solutions to specific problems are being developed in consultation with the business community.
Working expenses scheme
Under the work-related expenses scheme (the WKR), the employer may designate certain elements of pay as subject to final deduction. These designated elements subject to final deduction are then:
- specifically exempted, or
- they fall under the flat-rate allowance for work-related expenses (and remuneration in kind must then be valued; in this context, payroll tax provides for a large number of flat-rate and zero valuations).
The Act provides for 10 specific exemptions. We describe them briefly in our article Payroll tax exemptions. This article also includes a list of zero valuations.
The salary components covered by the work-related expenses allowance are exempt from payroll tax. However, this exemption applies up to a maximum of 1.2% of the total wage bill. The employer pays payroll tax (final levy) at a rate of 80% on the amount by which the salary components covered by the work-related expenses allowance exceed this maximum.
Specific bottlenecks
The specific issues with the work-related expenses scheme, which the Government intends to address following consultation with the business community, are:
- no obligation to specify wage components to which a specific exemption applies;
- to allow the wage benefit arising from the provision of meals to be determined on the basis of a sample;
- reintroducing the standard interest rate for staff loans;
- to provide greater clarity regarding personal contributions in relation to the necessity criterion.
The Government has also made it clear that there will be no budgetary increase to the work-related expenses scheme. Any new or more generous targeted exemptions must be funded by a reduction in the flat-rate allowance for work-related expenses.
The necessity criterion, introduced in 2015, is functioning as intended. This criterion applies to tools, computers, mobile communication devices and similar equipment (including associated software and data transmission facilities). The hoped-for expansion of these categories does not appear likely in the short term.
Simplification
Nevertheless, in our view, it is rather remarkable that the Government has decided not to make any (significant) changes to the work-related expenses scheme. The evaluation also shows that the majority of employers do not perceive any difference in the time spent as a result of the scheme’s introduction. The reduction in administrative burden intended with the introduction of the work-related expenses scheme is not being felt.
But that seems to be down to the employers themselves. The Government refers to the “perceived” administrative burdens. These are not falling, because:
- however, entries are still made at individual level for internal record-keeping purposes;
- As a result of the WKR, employers have become more aware of how allowances and benefits in kind should be administered.
A little further on, we read: “Both intermediaries and Tax and Customs Administration staff agree that the WKR was essentially a good idea, but that it has become too complex in practice. This is because many administratively burdensome schemes have ended up being incorporated into the WKR after all.”. Herein lies the key to simplification.
Conclusion
The work-related expenses scheme remains virtually unchanged. It is therefore important that, as an employer, you make the best possible use of the scheme. By carrying out a (quick) review of your terms and conditions of employment, VWGNijhof can advise you on areas where there is scope for further optimisation.