New trivial benefits in kind exemption is not so trivial

We have a limited company client who are basically a lovely employer. They often give their employees little treats and perks and generally make the company a great place to work. Then we come along with our accountant’s head on and start quizzing them about the minute details of each expense to try and determine whether it falls within any taxable expense category and also if it will cause the employee to suffer a benefit in kind. What was meant as a generous gesture could easily end up causing the employee unwanted extra tax.

Making the most of the new trivial benefits in kind exemption

This is why I’m quite excited about the Trivial Benefits in Kind Exemption that is due in the Finance Bill 2016. It will be easier to be a lovely employer without the gesture backfiring and penalising your employee. UPDATE – the Trivial Benefits in Kind Exemption applies from 6 April 2016.

What is allowed?

A trivial benefit has to satisfy the following conditions in order to qualify for the new trivial benefits in kind exemption:

No more than £50 per benefit (or average of £50 if the benefit is provided to a group of employees and it is not possible to work out the exact cost for each individual).
Not cash or a cash voucher (but gift vouchers e.g. for a shop, are allowed).
There is no entitlement to the benefit as part of the employee’s contract (including salary sacrifice schemes).
It is not provided in recognition of a work related service or employment duty.
In close companies (most small limited companies, see this definition http://www.hmrc.gov.uk/manuals/ctmanual/ctm60060.htm ) there is a limit on the total trivial benefits exemption of £300 per tax year per director (or office holder). Normal employees don’t have this £300 limit.

The exempt trivial benefits will not counted towards taxable income or class 1 NIC and need not be reported on the P11D, P9D or P11D(b).

Keep it in the family!

The exemption also applies to family or household members so if there is a function where partners are invited then each employee’s partner can share the £50 trivial benefit for the particular event. Similarly, where a close company director has the £300 per year limit, any benefits provided to their family or household members are also included within this limit.

What kind of things can be included as trivial benefits?

HMRC has a useful draft guidance document giving a good range of worked examples, particularly around how to use the £300 close company limit.

The type of trivial benefits that are allowed include expenses such as:

Taking a group of employees out for a meal to celebrate a birthday.
Buying each employee a Christmas present.
Flowers on the birth of a new baby.
A summer garden party for employees

The basic gist is that it has to be a freely given gift related to employee welfare and goodwill, not employment service or performance.

Be careful!

If the individual benefit exceeds £50 (or an average of £50 per head), the whole amount then comes taxable as a benefit in kind, not just the excess over £50.

What is not allowed?

Again, based on the HMRC Guidance document, some examples of what is not allowed under the exemption include:

Providing a working lunch for employees (because this is related to their employment).
Gifts, incentives or events related to performance targets or results.
Gifts, incentives or events in relation to employment services e.g. team-building events.
Taxis when employees work late

Entertaining and Gifts

The new tax exemption only applies to the tax that the employee would suffer due to benefits in kind. There is no change to the tax you can claim in your company tax return. For example a birthday meal may well still count as entertaining, which is not allowed for corporation tax.

In summary

This change was originally due in the Finance Bill 2015, but for some reason, it was deferred. Hopefully this time round it will become legislation and come into force from 6 April 2016. Then you can go ahead and treat your employees as much as you want without the trivial benefit stress.

Yes, to anything up to £50 per head that is related to employee welfare and not to employment service or performance.
Directors of close companies are limited to £300 trivial benefits per tax year.
The benefit amount can be shared between an employee and other household or family members providing the limit is not exceeded.
If it’s over £50 per person the whole lot becomes a benefit in kind and the normal rules apply.
There is no change to what counts as entertaining, which is not allowed for corporation tax.

Links

https://www.gov.uk/government/publications/income-tax-exemption-for-trivial-benefits-in-kind/income-tax-statutory-exemption-for-trivial-benefits-in-kind

https://www.gov.uk/government/publications/tax-exemption-for-trivial-benefits-in-kind-draft-guidance/tax-exemption-for-trivial-benefits-in-kind-draft-guidance