News added on 07.03.2016

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Benefits in kind

Trivial benefits draft guidance published

HMRC has issued draft guidance on the tax exemption for trivial benefits in kind worth less than £50 that comes into effect from 6 April 2016. How’s it going to work?

£50 exemption. From 6 April 2016 the tax exemption for employers to provide employees with trivial benefits of up to £50 in value finally comes into force (you might remember it was supposed to come in last year). HMRC has now published guidance on how the exemption will operate.

Conditions. Under this exemption, if an employer provides a benefit to its employees, the benefit is exempt from tax as employment income if all the following conditions are satisfied:

  • the cost of providing the benefit does not exceed £50 including VAT (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) (see EIM21865)
  • the benefit is not cash or a cash voucher (see EIM21866)
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements) (see EIM21867)
  • 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) (see EIM21868).

Tip. For many years, there’s been an annual party exemption for employees of £150 per head. However, the draft guidance suggests that you can now use the new trivial exemption to provide a second “party” for all employees tax free providing the average cost per employee is not more than £50 including VAT.

£300 limit for close companies. The guidance states that 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.

NI problem. One problem we identified from the guidance is that although the trivial benefits will be exempt from tax from 6 April 2016, they will still attract Class 1 NI until the NI Regulations have been amended in late summer (after the Finance Bill 2016 has received Royal Assent). Therefore, to avoid NI on trivial benefits, you should wait until the NI Regulations are in force before providing them to employees.

The £50 exemption is VAT inclusive and there will be a £300 annual limit for close company directors and their families. The NI position will lag behind the tax position so you may want to wait until the NI Regulations are updated in late summer before providing trivial benefits.

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