In April 2016, HMRC introduced new legislation to allow employers to provide tax-exempt gifts and entertainment to employees, namely Trivial Benefits. This exemption reduces reporting obligations and any tax or National Insurance charge where all of the following conditions are met:
- The benefit must cost no more than £50
- It is not cash or a cash voucher
- The benefit must not be provided as part of salary sacrifice arrangements or any other contractual obligation; and
- It must not be a reward for services
Moreover, directors of a close company or a member of their family/household can also receive trivial benefits, but cannot receive more than £300 in any one tax year.
In determining whether a benefit can be treated as trivial, the cost of providing the benefit to each employee is considered, not the overall cost to the employer. It is important to note that the cost of providing a benefit can be the provision of one item/event, or the provision of a series of items/events which together constitute a single benefit. For example, if an employer provides a birthday gift consisting of a bunch of flowers costing £40 and a box of chocolates costing £5, the total cost of providing the benefit is £45.
Since the introduction of Trivial benefits, HMRC has issued updated guidance relating to the legitimate expectation of benefits. If, as an employer, you repeatedly or become obliged to provide the same benefit over the course of a tax year, to the point where an employee could reasonably expect to receive the benefit this may create a legitimate expectation as the contractual nature of benefits can change over time, which is an employment law point.
As there is an expectation to receive the benefit by the employee, this could give rise to Income Tax and National Insurance implications. In determining if the trivial benefits exemption can apply, similar to the expectation given in the birthday gift example above, the benefit will need to be considered in its entirety rather than as a series of isolated instances of provision. This may ultimately take the benefit out of the scope of trivial benefits and therefore become reportable.
If any benefit provided to employees fall under the trivial exemption, they are not to be reported on either a P11D or on a Pay as You Earn Settlement Agreement (PSA) following the end of the tax year. By removing this obligation, this has seen simplification for companies in the reporting required surrounding employee benefits where the value is minimal. However, it is necessary for employers to keep a record of all benefits provided to employees, whether trivial or not. This is because if HMRC were to carry out an employer compliance review, they could request line of sight to the finer detail of benefits provided to ensure the tax and National Insurance treatment applied at the time was correct.
It is important to remember that any benefits provided to employees which do not fall under the trivial exemption must continue to be reported to HMRC on either a P11D or PSA on an annual basis.
If you have any questions on the rules surrounding employee benefits or would like any further information please get in touch with Charlotte Edwards (firstname.lastname@example.org) or your usual AAB contact.
By Charlotte Edwards, Employment Taxes Senior Manager
For more information on Charlotte and the Employment Taxes team, click here.