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New Trivial Benefits rules published
17 February 16 | By: Jas Jhooty
HMRC have recently published their draft new guidelines for trivial benefits provided after 6th April 2016. The exemption for trivial benefits has had a turbulent time in its introduction with it being unexpectedly withdrawn at the last minute last year. Now after a year’s delay the trivial benefit exemption is finally being introduced.
There is now a statutory exemption for trivial benefits that applies if all of the following conditions are met: –
- 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 and it is impracticable to work out the exact cost per person)
- the benefit is not cash or a cash voucher
- 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)
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.
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.
Cost of the trivial benefit
One of the conditions that has to be satisfied is that the cost of providing the benefit does not exceed £50 (inclusive of VAT). If the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50.
The cost of providing the benefit to each employee and not the overall cost to the employer determines whether the benefit can be treated as a trivial benefit. So, a benefit costing up to £50 per employee whether provided to 1 or more employees can be treated as trivial.
Usually it will be obvious what the cost of providing the benefit is. However, on occasions an employer will provide a benefit to a group of employees and it is impracticable to establish what the precise cost is per person. In such cases, when determining whether the monetary limit has been exceeded you should take the average cost per person of providing the benefit.
Cash and non-cash vouchers
One of the conditions that has to be satisfied before the trivial benefits exemption can apply is that 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.
An employer provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.
Cash and cash vouchers cannot be treated as exempt from tax as trivial benefits, regardless of how small the cost.
One of the conditions that has to be satisfied before the trivial benefits exemption can apply is that the employee is not entitled to the benefit as part of a contractual obligation (including under salary sacrifice). 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 how small the cost.
Just because a gift is provided each year, or is provided to all staff members, does not mean that the employee has a contractual entitlement to it. HMRC should not normally seek to challenge modest gifts that are provided infrequently to employees, just because they are given to employees each year – for example, a Christmas or birthday gift.
Not in recognition of particular services
One of the conditions that has to be satisfied before the trivial benefit exemption can apply is that 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 services, or because of something they have had to do as part of their employment duties, it should be taxed in the normal way.
Typically, trivial benefits include benefits provided solely for staff welfare purposes such as a bunch of flowers on the birth of a child or a bereavement. Benefits provided in recognition of services provided such as long service awards and social events as a team-building event or as a thank-you for good results in the year will not qualify as trivial benefits.
The vast majority of employers will only provide their employees with benefits that are not linked to particular services on an irregular or infrequent basis. There is a cost to the employer of providing such benefits and the employer will want to be careful in managing its employment costs. Therefore, if an employer provides their employees with benefits on a regular or frequent basis you should consider whether they are linked to the employee’s services.
How emTax can help
We are pleased to see that these new guidelines appear to be based on a common sense practical approach and are not too draconian in their definition of what items can be classified as trivial benefits.
Please do not hesitate to contact us if you need any more advice on how this new exemption will interact with other existing exemptions e.g. canteen exemption, Xmas party etc.
There are many changes to benefits and expenses legislation coming into force from 6th April 2016. These include voluntary payrolling of benefits & the end of the P11D dispensation regime as well as new trivial benefit rules as outlined above.
emTax are offering a comprehensive and cost-effective Benefits and Expenses training course for 2016 that explains succinctly what all of these changes will mean for your organisation. If you interested please click here for more details.