Tax Exemption for Trivial Benefits – effective 6th April 2016

Want to thank your employees for their hard work, gain some goodwill or just give them a little boost without the associated tax burden? This will soon be easier than ever before!

Dropped in the run-up to the 2015 general election due to a limited time for legislation, the government has just published it’s guidance on the statutory exemption to exempt low value benefits in kind from income tax and NICs which will come into effect 6th April 2016.

The definition of “low value” is that the cost of providing the benefit to the employee, or the average cost per employee, does not exceed £50.

However, 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, i.e. no more than 6 low value benefits.

There are additional criteria that must also be met in order for the exemption from income tax and NICs to be satisfied, namely;

• 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 exchange 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)

As a result of the new legislation, employers will no longer be required to report such benefits on either form P11D or via Pay As You Earn Settlement Agreements (PSAs) at the year end. However, employers will still be required to ensure they keep good records of who has received trivial benefits and the values to provide to HMRC in the event of any enquiries.

There is no doubt that if HMRC spot what they consider to be abuse of the exemption we can expect further restrictions to be introduced. However, we would also hope that HMRC will review the £50 cap regularly so that the exemption continues to be worthwhile for employers.

If you have any questions on either voluntary payrolling of benefits in kind or the rules surrounding trivial benefits please get in touch with Charlotte Stewart, Integrated Employment Solutions Assistant Manager, <a href=”mailto:charlotte.stewart@aab.uk”>charlotte.stewart@aab.uk</a>