Trivial Benefits

Legislation has been introduced which provides more clarity as to what benefits are deemed to be trivial benefits and what conditions are required to be satisfied in order for deemed trivial benefits to qualify for the exemption.

Who is affected?

Employers that provide expenses or benefits to employees and directors.

Exemptions – Conditions to be satisfied?

Under this exemption, if an employer provides a benefit to its employees, the benefit is exempt from tax and National Insurance Contributions, as employment income if all the following conditions are satisfied:

  • the cost of providing the benefit does not exceed
    £50 (including VAT) (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per employee);
  • the benefit is not cash or a cash voucher. Gift cards would qualify as long as they are not exchangeable for cash;
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements);
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services).

If any of these conditions are not satisfied then the benefit is taxed in the normal way, subject to any other exemptions or allowable deductions.

Also, if the cost of the benefit exceeds £50, the whole amount will be required to be included on a PAYE Settlement Agreement (“PSA”), P11D or taxed through the payroll, rather than just the excess.

Third party trivial benefits

The exemption also applies where the trivial benefit is provided on behalf of the employer by a third party. For example, where the benefit is provided through a management services company within a group of companies or by a third party business where management services have been outsourced, provided the cost of the benefit is ultimately borne by the employer.

What does this mean?

Where benefits meet the conditions for the exemption, they will be exempt from tax and NIC and will no longer need to be reported on the employee’s P11D, included in a PSA or taxed through the payroll.

Close company?

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year.

This means that the total cost of separate trivial benefits provided by the company that are exempt from tax is limited to a maximum of £300 in any tax year. This is known as the annual exempt amount. Where the company provides benefits that it considers are trivial, it will need to keep suitable records to demonstrate that this amount has not been exceeded.

Examples of trivial benefits

Per HMRC’s guidance, some types of examples of trivial benefits are:

  • taking a group of employees out for a meal to celebrate a birthday;
  • buying each employee a Christmas present or birthday present;
  • flowers on the birth of a new baby;
  • a summer garden party for employees.
The aforementioned is on the basis that the benefit per employee does not exceed £50.


PSA

A PSA is an agreement between an employer and HMRC whereby the employer will bear the tax and National Insurance Contributions in relation to agreed minor, irregular or impractical benefits provided to employees or directors.

P11D

A P11D is a form completed by the employer and submitted to HMRC to notify HMRC of benefits received by employees or directors. The employee will therefore be subject to income tax on benefits reported on this form.

Payrolling benefits

It is now possible to payroll benefits and expenses using HMRC’s Payrolling Benefits In Kind (PBIK) service. This means that employees will be taxed on their benefits in real time instead of through a restriction to their tax code in a later tax year.

Any payrolled benefits or expenses will no longer have to be reported on the employee’s P11D, although an adjustment will be required on the company’s P11D(b) to collect the Class 1A NIC due. Employers will also have the option of payrolling some benefits, while continuing to report others on form P11D or of excluding those employees who don’t want their benefits payrolled.

The only benefits that it won’t be possible to payroll are:

  • vouchers and credit cards;
  • living accommodation;
  • interest free or low interest loans.
From 6 April 2017 it will also be possible to payroll non-cash vouchers and credit tokens. Please note that any employers wishing to payroll benefits or expenses in 2017/18 will need to register with HMRC by 5 April 2017 at the latest.

Assistance
If you provide Trivial Benefits or are interested in the possibility of Payrolling Benefits in Kind and require assistance or tax advice, please contact one of our team, who will be happy to assist you.

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