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A closer look at HMRC’s consultation document for a Trivial Benefits exemption
17 July 14 | By: Jas Jhooty
In June, HMRC launched details of four important consultations aimed at simplifying existing benefits and expenses legislation. In this article we examine the proposals set out by HMRC in respect of setting a Trivial Benefits exemption limit.
BackgroundCurrently there is no defined monetary limit of what value constitutes a Trivial Benefit . At the moment employers are allowed to contact HMRC with their own arguments of what they consider to be a fair limit for Trivial Benefits appropriate to their organisation. HMRC will take into account: -
- the cost of providing the benefit to each employee
- the reasons for providing the benefit
- the amount of administration involved relative to the potential tax yield
before agreeing that certain benefits can be considered to be trivial.
However with 500,000 P11Ds being submitted annually with a total benefit-in-kind amount of less than £100, considerable savings can be made to both employers & HMRC if this piecemeal approach was abandoned and sensible Trivial Benefit limits were set in the tax legislation.
“Principle based” definitionThe Office of Tax Simplification proposed that a sensible “principles based” definition of what a Trivial Benefit is was better than having a list of exempt benefit-in-kinds. The following principles should apply to the definition of a Trivial Benefit: -
- It must not be in the form of cash or a voucher
- It must not be provided on a continual or regular basis
- There must be no pre-arrangement or expectation of any entitlement to a Trivial Benefit
- Employers cannot use any Trivial Benefit exemption in conjunction with any salary sacrifice arrangements
- If a benefit is already covered by a statutory tax exemption then these arrangements will not be disturbed
HMRC intend to set a relatively low level limit to ensure that only genuinely Trivial Benefits fall within the “principles based” definition. They are seeking input from employers of what they feel should be an appropriate monetary limit for the definition of a Trivial Benefit.
HMRC will not allow any Trivial Benefit exemption to be unlimited. They intend to impose an overriding annual exemption. Any trivial benefits provided after the annual exemption limit has been reached will be taxable. HMRC would prefer a higher cost Trivial Benefit limit with a lower annual exemption limit as they believe that this would more effectively deliver their intention that the statutory exemption should apply to one-off or irregular Trivial Benefits.
Basis for the exemptionHMRC are consulting with respondents on whether the annual exemption should be based on either: –
- an annual cost – Any number of Trivial Benefits can be provided Tax & NIC free to the employee up to the annual exemption limit
- or a specific number – Thus enabling an employee to receive a certain number of Tax & NIC free Trivial Benefits per year
“All or Nothing” rule
HMRC intend to impose an all or nothing rule to what constitutes a Trivial Benefit. For example if the annual exemption was set at £75 with the individual monetary limit for each Trivial Benefit set at £30. If an employer provided three Trivial Benefits to an employee valued at £30 each, the third Trivial Benefit would be taxable on the full £30 and not just on the balance of £15 over the annual exemption of £75.
Employer based exemption
HMRC considers that an annual exemption at each employment would be the most appropriate basis for applying the proposed Trivial Benefits exemption. Employees with more than one employment will enjoy more than one exemption.
How emTax can help
Over the summer emTax have been invited to attend stakeholder meetings with HMRC to discuss these proposals. If you have any thoughts or ideas about what you think the Trivial Benefits monetary limit or the annual exemption should be, please let us know so that representations may be made to HMRC on your behalf.