Tax Free Trivial Benefits – Make Sure You Make the Most of This Opportunity
First announced in the spring 2015 budget, new legislation clarifying the tax treatment of trivial benefits came into force from 6th April 2016.
But is this an easy opportunity to extract benefits tax free from your company?
The simple answer is yes!
Historically there was an issue as to whether trivial benefits are taxable. For example, those little gifts such as a box of chocolates or a magnum of champagne for a birthday, Christmas or a special event. Up until 2016 there had been no stated minimum figure, leaving tax advisers and clients to guess what HMRC consider as “trivial”. If they got it wrong the risk was that the benefits would be taxable on the employee recipients and the company or business would be landed with a national insurance liability.
HMRC have finally issued clearer guidelines whereby no liability to income tax or national insurance arises where the following conditions are met:
- The benefit is not cash or a cash voucher (but gift vouchers e.g. for a shop, are allowed provided they cannot be exchanged for cash)
- The cost of the benefit, or the average cost per person of providing the benefit, does not exceed £50
- The benefit is not provided pursuant to relevant salary sacrifice arrangements or any other contractual obligation
- The benefit is not provided in recognition of particular services performed by the employee in the course of the employment or in anticipation of such services.
In addition, there’s a limit of £300 per tax year for directors or other office holders of a close company and members of their close family or household (a close company is one owned by 5 or fewer participators – in general this means shareholders).
So if Mrs Smith, a director, receives a £40 bottle of champagne on her birthday, then a £45 turkey at Christmas she will still have £215 left of her annual allowance. Let’s say she gives a summer garden party for all her employees which costs on average £30 this will then leave her with £185 left of her allowance.
Firstly if an individual benefit goes over £50 then the whole benefit is taxable.
Secondly, make sure it’s not a reward or linked to the individual salary. For example, an employee works a couple of hours extra and instead of paying them you reward them with a gift or if you set the team a target which they hit and you take them all out for a meal as a reward. In both cases the reward fails and is strictly taxable.
This is a minefield. If as an employer you want to get pizzas in for your team then provided this is not a team building event or a regular event then this will be fine.
Clearly there is a fine line between what tax free trivial benefits are included and what isn’t, but provided you can keep within the rules detailed above and with an overall limit of £300 per director or office holder then you should be fine.
As it’s such a fine line please contact Jan Friend for help and advice.
The content in this blog is correct as at 23rd October 2018. See terms and conditions.