Trivial Benefits Provided By EmployersWritten on June 15, 2016 by Kirk Rice LLP
Until recently even trivial benefits provided by an employer for directors and staff have always been chargeable to tax unless an agreement was in place with HMRC to cover small amounts. Items that were typically included were relatively small gifts, maybe in celebration of a wedding, birth of a child or a small Christmas gift, but this has been somewhat of a ‘grey area’.
To regularise the position and to clarify what can be treated as ‘trivial’ a new exemption was introduced on 6 April 2016. This means that gifts costing under £50 (including VAT) are now exempt and no declaration to HMRC is required. Importantly, if the cost exceeds the £50 limit, the whole of the benefit is taxed, not just the excess.
As always, there are a few conditions that need to be met:
- The benefit is not cash or a cash voucher (although gift vouchers are now acceptable)
- The cost of the benefit does not exceed £50
- The employee cannot be contractually entitled to the benefit (including via a salary sacrifice arrangement)
- The benefit is not provided in recognition of services performed by the employee
To avoid smaller companies taking advantage of this, there an annual cap of £300 for any benefits provided to directors or other office holders (or their families) of close companies, but even with this cap, this is a new benefit which directors will undoubtedly like to claim to their advantage.
Surprisingly, these new rules do include some relaxations and will give scope for some employers to benefit from these changes;
Staff entertaining
Until now, other than the specific relief for an annual event, entertaining was taxable on the employee (unless the employer opted to pay the tax under a PAYE Settlement Agreement PSA). However, since 6 April 2016 an employer can now take staff out for meals or provide staff events under the £50 trivial benefits exemption. Provided of course that this is not in any way a reward for services performed (e.g. a well done meal for a top performing team or employee). Using an example from HMRC’s own guidance, five employees being taken out for a meal to celebrate a number of birthdays at a total cost of £240, results in an average cost below the £50 limit, and the benefit of the meal is covered by the exemption. This is likely to be useful for employers who like to put on more than the annual Christmas party.
Store vouchers
As mentioned above non-cash vouchers are now allowed. Employers who prefer to give store vouchers can now do so and benefit from the exemption, providing choice to the employee. This will no doubt be a very welcome relaxation for many employers.
If you think this would be a useful benefit to you as a company, and would like any further advice, please do not hesitate to contact me on 020 8789 8588 or email hadley.baldock@kirkrice.co.uk.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made
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