Tax Exemption for Trivial Benefits in Kind
We have some good news for employers, directors and employees.
There is a new exemption from tax and National Insurance Contributions for trivial benefits from 2016/17.
The following conditions need to be satisfied:-
- The cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees). If the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.
- The benefit is not cash or a cash voucher. However, benefits provided in the form of a non-cash gift voucher can be covered by the exemption.
- The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements). Therefore, if the employee is entitled to the benefit, whether because of a clause in their employment contract or some other agreement, then the exemption does not apply and the benefit should be taxed in the usual way, regardless of the cost.
- 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). Therefore, if the benefit has been provided as a reward for meeting a performance target, it should be taxed in the normal way.
Annual Exempt Amount
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 is known as the annual exempt amount.
Where a trivial benefit is provided to a member of the director’s family or household, the cost of the trivial benefit counts towards the director’s annual exempt amount, unless the member of the family or household is taxed on the benefit in their own right as an employee of the company. They also have their own annual cap of £300. HMRC have provided the following examples to illustrate how to apply the annual exempt amount :
Company I provides a director with 3 benefits that cost £30, £45 and £50 respectively in a single tax year. The total cost of the benefits is £125. The total cost does not exceed the annual exempt amount of £300 and all of the benefits can be covered by the exemption.
Company J provides a director with 7 benefits that each cost £45 each during the tax year. The total cost is £315 which exceeds the annual exempt amount. The last benefit of £45 is not exempt from tax.
The trivial benefit exemption will save employers the time and cost of obtaining agreement from HMRC that a benefit can be provided free of tax and NIC.
The Low Income Tax Reforms Group (LITRG) have welcomed the legislation saying it should mean a reduction in administrative burdens for employers of all sizes. It should also mean that employees do not face a tax charge on items that they do not view as a benefit in kind. LITRG is pleased to note that the exemption is principles-based and brief with only four conditions for the general rule.
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