By Louise Stephenson
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November 6, 2018
These are small perks that an employer can provide to their employees without having to pay tax on them. Trivial benefits that are exempt from income tax are automatically be exempt from Class 1A NIC from 6 April 2016. Trivial benefits will mainly consist of gifts to staff or members of their family on special occasions such as Christmas, birthdays, marriage or the birth of a child. Conditions: They cannot be more than £50 per benefit (1p over and the full value of the benefit is taxable) Benefit must not be a cash payment - however gift vouchers are allowed (but only as long as they cannot be exchanged for actual cash) Gift vouchers must be purchased at separate times from online retailers (e.g. Tesco/Amazon) otherwise they are viewed as a single benefit. There is no entitlement to the benefit as part of the employee’s contract (including salary sacrifice schemes). It is not provided in recognition of a work-related service or employment duty. The exemption is an ‘all or nothing’ exemption: if the value of the benefit is £60 then the full amount of £60 is taxable, not just the £10 excess. Directors, office holders and employees who are members of their family and household are subject to an annual cap of £300. Examples of what is allowed: Flowers Chocolates Wine (not vintage wine for investment) Hampers Taking staff for meal Examples of what is NOT allowed: Providing a working lunch for employees (because this is related to their employment). Gifts, incentives or events related to performance targets or results. Gifts, incentives or events in relation to employment services e.g. team-building events. Taxis when employees work late An ongoing or reoccurring cost. e.g. yearly gym membership/annual broadband Examples Scenario 1: Celebrating Birthdays You take a group of your employees out for a meal to celebrate their birthdays. Five employees attend the meal at a cost to you of £240. Each of the employees choose a different selection of food and drinks. The cost per head works out at £48, if the bill is split evenly. This can be covered by the exemption since the cost for each individual does not exceed the trivial benefit limit. Scenario 2: Staff Parties As director, you decide you want to provide your employees with two annual functions, one at Christmas and one in the summer. The first function costs £140 a head and the second costs £40. The first function is exempt by virtue of the annual parties function exemption. The second would be considered a trivial benefit in kind because it does not exceed £50. Scenario 3: Director Benefits As a director you are provided with 3 bottles of wine that cost £30, £40 and £50 respectively in a single tax year. The total cost of the benefits is £120. The total cost does not exceed the annual exempt amount of £300 and all of the benefits can be covered by the exemption. HMRC Example 1 Mr and Mrs Smith are directors of a close company and their daughter Jo is an employee. In October Mrs Smith receives a bottle of wine from the company for her birthday. - The cost to the company is £30 and this amount is deducted from her annual cap of £300, leaving her an available exempt amount for any future trivial BIKs in the tax year of £270. At Christmas Mr and Mrs Smith both receive a gift from the company that cost the company £50 each, and their daughter receives a gift costing £25. - As Mr Smith has not received any other trivial BiKs, the cost of the Christmas gift is deducted from his annual cap of £300, leaving him an available exempt amount for any future trivial BiKs in the tax year of £250. - For Mrs Smith, the cost of her Christmas gift is deducted from her available exempt amount of £270, leaving her an amount to set against any further trivial BiKs in the tax year of £220. - Jo is an employee, but as she is also a member of the directors’ family, an annual £300 cap applies to her. The cost of her Christmas gift must be deducted from her cap, leaving her with an available exempt amount of £275 for any future trivial BiKs in the tax year. Comment: Jo is a member of Mr & Mrs Smith’s family and so benefits provided to her are subject to an annual £300 cap. She is an employee of the company in her own right and so she has her own cap of £300. HMRC Example 2 Peter and his brother George, are directors of a close company. They have a sister, Sarah, who is not an employee of the company. Due to the provision of eligible trivial BiKs earlier in the tax year, Peter has an available exempt amount of £55 and George has £95. At Christmas they are each provided with a turkey by the company, each costing the company £50. The available exempt amount for both Peter and George will be reduced by the cost of their own turkeys, leaving £5 and £45 respectively. As Sarah is not an employee, the cost of her turkey must be allocated equally between any employees who are members of her family or household and directors or other-office holders of the company. This means that an amount of £25 (£50/2) will be allocated to each of her brothers and deducted from their available exempt amounts. Peter will exceed his annual exempt amount of £300, as he only has £5 available. As the exemption is an all or nothing provision, he will be liable to tax on the full allocated amount of £25. George’s available exempt amount is sufficient for the allocated amount to be fully covered, and he has £20 (£45-£25) available for any future trivial BiKs in the tax year.
