Since 6 April 2016, a tax exemption for “trivial” benefits provided to employees has been made available to employers. The legislation allows an employer to provide a benefit costing £50 or less to an employee without triggering a tax or National Insurance charge, whilst also removing the need to report.
In addition to the benefit costing £50 or less to provide, it must also meet the following criteria:
- It is not cash or a cash voucher (i.e. vouchers that can be exchanged for cash)
- It is not a reward for an employee’s work or performance
- It is not within the terms of the employee’s contract
Employer compliance around trivial benefits has been an area of increasing focus for HMRC
Before this legislation was introduced, such benefits were required to be reported on either a form P11D (P11D(b) for National Insurance) or on a Pay as Your Earn Settlement Agreement (PSA) following the end of the tax year. By removing the obligation to report small benefit values, the legislation aims to remove a significant administrative burden for employers. Recently, however, employer compliance around trivial benefits has been an area of increasing focus for HMRC.
The £50 limit
Initial HMRC focus fell upon the utilisation of the £50 limit. An employer can provide unlimited trivial benefits to their employees, providing the above criteria are met. However, directors of a close company or a member of their family/household cannot receive more than £300 in trivial benefits in any one tax year.
HMRC focused particularly on cases where benefits were being provided over a number of months during a tax year. Where benefits have been provided over several occasions and the value is under £50 each time, but the overall cost of providing the benefit exceeds £50 then the trivial benefits exemption would not apply. It is important to note that where the cost of the benefit exceeds the £50 limit, the whole value falls subject to tax and National Insurance, not just the excess.
HMRC are focusing on the form in which the benefit is provided
HMRC’s more recent focus, however, has been around the form in which the benefit is provided (i.e. not being cash or a cash voucher). If, for example, an employer wanted to treat their employees to a meal but was unable to attend personally, the employer may opt to give the employees cash (or a cash voucher) to cover the cost of the meal in their absence. However, when providing cash in any scenario, there is no control over how it is spent and therefore would constitute employment earnings. As such, the value of cash provided would be subject to tax and Class 1 National Insurance via the payroll.
Similarly, if an employer was to provide a bouquet of flowers to an employee for a milestone birthday but the cost was incurred by one of the employee’s colleagues and later reimbursed by the Company, strictly speaking this would not meet the criteria of the gift being not cash or a cash voucher. While the practicalities around this must be taken into account, this is an area we are aware that HMRC are paying closer attention to and as such employers should be more vigilant of the criteria with the cost incurred by the Company first hand as far as possible.
Taking the above examples, the more tax efficient way to provide trivial benefits to employees would be with a voucher (that cannot be exchanged for cash) or a physical gift that has been directly purchased by the Company. Providing all other criteria are met, this would qualify as an exempt trivial benefit.
If you would like any assistance on reviewing your current expense and benefit procedures or reporting. Please get in touch with Megan McDonald or your usual AAB contact.
You can find out more about AAB's Employment Taxes team here