Trivial benefits in kind Factsheet June 2016
New legislation has been introduced by HM Revenue and Customs from 6th April 2016 with regard to tax exempt benefits paid to employees.
The measure introduces a statutory exemption which will exempt from income tax and NICs low-value Benefits in Kind (BIKs) which meet certain qualifying conditions, including a £50 limit per individual BIK. Qualifying ‘trivial’ BIKs provided to directors or other office holders of close companies, or to members of their families or households, are subject to an annual cap of £300.
What is allowed?
A trivial benefit has to satisfy the following conditions in order to qualify for the new trivial benefits in kind exemption from 2016/17:
- 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.
Remember, there is a limit on the total trivial benefits exemption of £300 per tax year per director (or office holder) and that any benefits provided to their family or household members are also included within this limit.
Normal employees don’t have this £300 limit but the exemption does apply 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.
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).
What kind of payments can be included as trivial benefits?
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
It is important to remember that the expense has to be a freely given gift related to employee welfare and goodwill, not employment service or based on performance.
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 kind of payments are not allowed as trivial benefits?
Some expenses will not be allowed, and HMRC give the following examples of what is not allowed under the exemption:
- 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 and allowance for corporation tax
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 allowable for corporation tax purposes.
There is no change to what counts as entertaining, which is not allowed for corporation tax.
These new rules provide an opportunity to simplify your P11d reporting obligations and, if used correctly, to minimise tax payments due on genuine gifts to employees and directors.
Please contact us if you wish to discuss how these rules affect you in more detail.