A trivial benefits exemption came into effect in April 2016. The main advantage is that an employer can provide trivial benefits such taking employees on a meal out to celebrate a birthday, buying a bunch of flowers to congratulate on a birth of baby or buying Christmas presents for the staff without any tax or national insurance for either employer or employee. The employer will also be entitled to claim income tax or corporation tax relief on the cost. This benefit even further extends to close companies, where director can receive up to £300 worth of benefits in the tax year. With this Tax Free benefit it is easier to be a lovely boss than ever before.
WHAT IS ALLOWED?
Up to £50 benefit per employee or an 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.
Up to £300 worth of benefits to each director or other office holder of the company (or a member of their family or household) when the employer is a close company. In general, a close company is a limited company which is run by 5 or fewer shareholders. This means that within the £300 maximum and £50 per item limit, as a close companies’ director you can also provide benefits to the members of your household. So you could buy a toy or a game for your children and a dress for your spouse (less than £50 each) tax free.
Note – If the cost of providing the benefit exceeds £50, the full amount becomes taxable, not just the excess over £50.
In general, for a benefit to qualify for the trivial benefits exemption all of the following conditions should be met:
- The benefit should cost you £50 or less to provide
- It is not cash or a cash voucher
- It is not a reward for their work or performance
- It is not in the terms of their contract
Note – store vouchers which can be exchanged for goods or services are allowed. EXAMPLES HMRC has provided a number of example scenarios where this exemption can be used to mitigate tax liabilities.
You take a group of your employees out for a meal to celebrate their birthdays. Five employees attend the meal at a cost to you of £240. Each of the employees choose a different selection of food and drinks. The cost per head works out at £48, if the bill is split evenly. This can be covered by the exemption since the cost for each individual does not exceed the trivial benefit limit.
As director, you decide you want to provide your employees with two annual functions, one at Christmas and one in the summer. The first function costs £140 a head and the second costs £40. The first function is exempt by virtue of the annual parties function exemption. The second would be considered a trivial benefit in kind because it does not exceed £50.
Gift vouchers for performance
Employer runs a call centre and gives £25 gift vouchers to employees who hit specific performance targets each week. The gift vouchers are provided in recognition of the services provided and so the exemption cannot apply.
Company provides a director with 8 benefits in the tax year. The first 5 benefits during the tax year cost £50 each. In date order, the next cost £40, £45 and £10 respectively. The total cost of the first 6 benefits is £290 which is less than the annual exempt amount so they are all exempt. The £45 benefit brings the total cost to £335 which exceeds the annual exempt amount. Therefore, the £45 benefit is not exempt, but is not counted towards the annual exempt amount. The £10 benefit brings the total cost to £300 which does not exceed the annual exempt amount so it is also exempt.
Director and a spouse as an employee
Company provides one of its directors with a bottle of wine on her birthday. It also provides a bottle of wine to the director’s husband who is an employee of company. Each bottle of wine cost £20. The £20 cost of each bottle counts towards the director’s and the employee’s personal annual exempt amounts. This benefit in kind exemption allows to minimise business tax liabilities. If you would like to discuss the ways this can be used to reduce your business tax, do not hesitate to contact us. For more information and examples see the guidance from HMRC.