The new rules governing “trivial benefits” represent a nice bonus, used with caution.
The rules governing “trivial benefits” changed from 6 April 2016, which means that exempt trivial benefits will not count towards taxable income or class 1 NIC and need no longer be reported. Low-value benefits (up to £50), therefore, will now be both tax- and NI-exempt. However, the following conditions must be met in order to qualify.
See the HMRC guidance on trivial benefits in kind exemption. These rules include:
- A £50 per benefit sealing (for groups averaged out)
- For normal employees there is no limit per annum
- The benefit amount can be shared between an employee and other close family members but must not exceed the £50 limit
- In close companies (defined here by HMRC) there is a limit of £300 per tax year, per director
- Cash or vouchers are not allowed, but gift vouchers e.g. for a shop, are allowed
- There must be no entitlement to the benefit as part of the employee’s contract (including
- Must not be provided in recognition of a work-related service or employment duty
The gist of the “trivial benefits” rule is that the benefit must relate to employee welfare and goodwill and must not relate to recognition of employment service or performance. The types 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
To be used with caution
Be cautious when applying the “trivial benefits” rule, because if the individual benefit exceeds £50 (including an on-average calculation for a group of employees), the whole amount then becomes taxable to the individual as a benefit in kind.
What is not allowed?
According to HMRC’s trivial benefits in kind exemption guidance, here are some examples of what is not allowed:
- Working lunches 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
The rules regarding entertainment and gifts
The new “trivial benefit” tax exemption applies to employees: the company cannot make a claim on its tax return. For example, a birthday meal is still counted as “entertainment”, which is not allowed under the rules governing corporation tax.
This change relates to good employer‒employee relations, to employee welfare, rather than to employment service or performance. Keep in the forefront of your mind the £300 per person per annum sealing for trivial benefits for directors of close companies. That the benefit amount can be shared between an employee and other family members providing the limit is not exceeded is a very attractive bonus, but be cautious about overspending per head: anything over £50 per person becomes a benefit in kind and is treated according to the normal rules.
Lastly, remember that there is no change regarding corporation tax and “entertainment”. As always, if in any doubt about expenses, BiK, or any other issue concerning your business, DNS is always ready to share its expertise. Get in Touch with us.