A number of clients have asked me recently just how far they can go with the new trivial benefits exemption.
It’s very easy for Chinese
whispers to generate considerable misunderstanding of what we can and cannot do under the new legislation [ITEPA 2003, s 323A]. It’s also helpful that HMRC has published draft guidance that goes into considerable detail and includes a number of examples.
The basic
rules
The basic rule is that an employer can now provide trivial benefits such as a bunch of flowers, a box of chocolates, a meal out, without having to put it on the P11D and without any tax or national insurance for either employer or employee. The employer will also be entitled to claim income
tax or corporation tax relief on the cost.
There are three key conditions:
- the trivial benefit must cost no more than £50
- the benefit must not be a reward for services or in any way contractual
- the benefit must not be cash or a cash voucher
Examples
The examples given in the HMRC draft guidance are, for the most part, sensible and very
helpful.
Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill you should accept that the cost per
head is £48, reflecting an average amount of £240/5. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.
No limits
The legislation does not impose a limit on the number of trivial benefits that an employer can provide. Based on the different examples given in the guidance an employee could potentially clock up £12,500 a year of tax free benefits. This would equate to a £50 benefit on each of 250 working days in the year. In my book such a scheme would fall foul of the reward
for services rule.
Context
Suppose I pop into Lidl every so often and buy four £30 bottles of champagne to give to
each of my employees. If I take them into the office and say “Hey guys – we’re hitting great delegate numbers on the 2017 courses programme so here’s a bottle of champagne”. That would be a reward for services and so would be taxable and NICable. But if I were to say “The sun is out, the sky is blue – I’m in a good mood and this is for you!” – then the champagne would be a trivial benefit.
Can directors benefit?
Director/shareholders can enjoy trivial benefits themselves, but HMRC knows what directors can be like, so the legislation imposes an annual cap of £300
on exempt trivial benefits provided to a director or office-holder of a close company (including benefits provided to members of their family or household). Here is my favourite example from the HMRC guidance:
Company A gives bottles of wine each costing £30 to a director, to his wife who is a former director, and to
their daughter on their birthdays. The daughter is not an employee or office holder of Company A, so the cost of her bottle of wine is apportioned between her father (a current director) and her mother (a former director). In respect of the daughter’s gift, £15 (£30/2) is allocated against the father’s annual exempt amount. The balance is allocated against the mother’s annual exempt amount under the amended employer-financed retirement benefits (EFRBS) regulations 2011. Brilliant, so much
in just one example!
So say you plan to use the company credit card to buy 12 gift cards with £50 credit on each of them. Over the next few months you occasionally give one of these to yourself and one to your spouse (who is also a director of the company). These gift cards cannot be exchanged for
cash.
How much will you save? Well each of you would have to pay £126 tax and NI on £300 of extra salary (assuming each is in the higher rate bracket) and the company would pay £41 of secondary class 1 NIC. So between you, you will save £335. Not bad.
To your success
Noel Guilford