HMRC issue draft guidance on new exemption for trivial benefits in kind

HMRC issue draft guidance on new exemption for trivial benefits in kind

Fri 19 Feb 2016

HMRC have issued draft guidance on the tax exemption for low value or ‘trivial’ benefits in kind, which is to be introduced from 6 April 2016. This new exemption will prevent companies from having to charge such benefits to tax (which would generally be dealt with though a PAYE settlement agreement) or agree concessionary treatment with HMRC on a case-by-case basis.  draft legislation which was issued as part of the draft Finance Bill 2016.

The new exemption
The general rule that will apply to benefits from 6 April 2016, is that a benefit will be exempt from tax as employment income if all the following conditions are satisfied:

  • 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 but only if it is impracticable to work out the exact cost per person.  The example given is of Christmas turkeys of differing weights given to employees out of a bulk order);
  • 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) – so no matter how small the benefit is, if it arises contractually it will not qualify for the exemption; and
  • 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).

The exemption is subject to an annual cap of £300 (referred to as the ‘annual exempt amount’), where the trivial benefits are provided to directors and other office holders of close companies, or to their family or household members (whether or not those family or household members are also employees in their own right).  It will be necessary for close companies to keep suitable records to demonstrate that the £300 threshold has not been breached on a case by case basis.

Regulations will be made to extend the exemption to former employees too where the benefit would have been exempt if provided to a current employee – these changes are expected to apply from 6 April 2016.

technical note issued at the time of the draft Finance Bill 2016 provided further details and examples around the provisions as they relate to close companies and former employees.

Benefits not falling within this exemption will be subject to the normal tax rules and exemptions, so just because the trivial exemption may not apply does not mean another relief might not be in point (e.g. late night taxis exemption).

Exemption from national insurance
Further regulations will be made once the Finance Bill 2016 receives Royal Assent, to provide for an exemption from national insurance for trivial benefits (other than non-cash vouchers) which meet the income tax exemption criteria.

These changes will only apply to benefits provided after those regulations are made – there will therefore be a period between 6 April 2016 and the date these regulations are made where such benefits will be exempt from income tax but subject to national insurance contributions.

Other changes to the taxation of benefits
A number of other changes to the benefit provisions are due to take effect from 6 April 2016, specifically the introduction of payrolling certain benefits in kind, replacing dispensations with an exemption for qualifying expenses and abolishing the £8,500 lower paid threshold and forms P9D.

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