New Trivial Benefits Exemption

Many employers will currently be in the process of completing P11Ds (returns of benefits and expenses) for the year ended 5 April 2017 for their employees, where the deadline for submission is 6 July 2017. Some may be arranging PAYE Settlement Agreements (PSAs) with HMRC, where they agree to pay any income tax and national insurance due on taxable benefits on behalf of their employees. Employers need to be aware of the new trivial benefits exemption for the tax year 2016/17, and these new rules are explained below.

Generous employers may provide gifts or entertainment for their staff to create goodwill. The last thing those employers will want is for that goodwill to be ruined with an unexpected tax bill for the staff concerned. Help is now at hand for these employers in the form of the new statutory exemption for trivial benefits which came into force from 6 April 2016.

Prior to the new rules HMRC allowed exemptions for reasonable gifts, but there were no clear thresholds, and it was necessary to rely on HMRC practice and guidance, which made it difficult to have certainty about the tax treatment.

The new statutory trivial benefits rules from 6 April 2016 surprisingly include some relaxations to the previous rules. For a benefit to qualify for the new trivial benefits exemption, all of the following conditions must be satisfied:

• the cost of the benefit cannot exceed £50 (HMRC will accept an average cost per employee if the benefit is provided to a group of employees and it is impractical to work out the individual costs)
• the benefit cannot be cash or a cash voucher (normal store gift vouchers, not exchangeable for cash, are allowed)
• the employee cannot be contractually entitled to the benefit (including by means of a salary sacrifice arrangement)
• the benefit is not provided in recognition of services performed by the employee

There is no limit on the number of trivial benefits that can fall within the new rules for employees, providing that they do not form part of the remuneration for their job, or part of a salary sacrifice arrangement. There are, however, special rules for directors of small companies limiting the overall total for a tax year to £300 of tax free trivial benefits.

There are some subtle differences to the treatment of benefits under these new rules. For example, previously any vouchers provided were subject to both income tax and national insurance, but now employers may provide store vouchers to staff and benefit from the exemption, on the basis that they are not exchangeable for cash. Staff entertaining can also benefit under the new exemption. Previously only ‘annual functions’ costing under £150 per head were exempt. Whilst this exemption continues, from 6 April 2016 any staff entertaining can benefit from the trivial benefit exemption. This will be good news for employers who put on more staff events than the annual Christmas party, as the cost of other ‘one off’ occasions where staff are entertained might become exempt from tax and NIC.

Overall, the changes provide greater clarity, and there is certainly scope for employers to save on gifts and staff entertaining generally under the new rules. Some employers are likely to find that the completion of P11Ds and agreeing PSAs are no longer necessary for 2016/17 as a consequence of these changes.

We have many years’ experience of dealing with employee benefits as well as personal and business tax issues at Page Kirk LLP, and offer a free one hour consultation if you wish to discuss your business or personal circumstances with us.

Steve Connington