Trivial Benefits in Kind

Position prior to April 2016

Prior to 6 April 2016, employers were required to report all Benefits in Kind (‘BiK’) provided to employees annually on forms P11D or P9D and, for Class 1A National Insurance Contributions (‘NIC’) purposes, on form P11D(b).

Employers could apply to HMRC for agreement to exclude certain BiKs on the ground that they are trivial which HMRC usually agreed on a discretionary basis. HMRC’s agreement was made by concession and consequently the employer did not need to report the BiK to HMRC and there was no liability to income tax for the employee or Class 1A NICs for the employer.

Following an announcement in the 2014 Budget, a consultation document was published in June 2014 which closed in September 2014 for responses. Following the consultation, legislation was introduced to come into effect from April 2016.

Position post April 2016

The new statutory provision, Section 323A ITEPA 2003 (as amended), came into effect from the 2016/17 tax year. If the conditions set out in the legislation are satisfied, there would be no liability to tax or NIC.

In brief, the following conditions need to be satisfied:

• The benefit must not be cash or a cash voucher (as defined in Section 75 ITEPA 2003 (as amended)).
• The cost of the benefit must not exceed £50. Where the benefit is being provided to more than one person and it is impracticable to calculate the cost of providing it to each person, the average cost per person must not exceed this amount.
• The benefit must not be provided pursuant to any contractual obligation or relevant salary sacrifice arrangements.
• The benefit must not be provided in recognition of employment services provided by the employee or in anticipation of the services.

Where the employer is a close company and the benefit is being provided to a director or office holder, or a member of their family or household, the exemption is capped at a total cost of £300 in the tax year.

Where the above conditions are met, the trivial benefit would not need to be subject to income tax or NIC and would no longer need to be reported to HMRC.

If any of the above conditions are not satisfied, the benefit would need to be subject to income tax and NIC and reported to HMRC unless another exemption applies.

HMRC have published their guidance on trivial benefits in kind; the guidance provides useful examples of when the exemption will and will not apply. Some of the examples are set out below:

The cost of the benefit:

The example provided by HMRC refers to an employer taking a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to the employer of £240. Individual employees make different menu and drink selections. Here HMRC have stated that the average cost per head of £48 should be accepted rather than undertaking a detailed analysis of the bill. 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.

Not in recognition of employment services:

The exemption can apply where an employer provides all staff with a Christmas gift to the value of £30 each year. The employees receive the gift each year regardless of their performance during the year. The gifts are not provided in recognition of the employees’ services and are merely a gesture of goodwill at Christmas.

The above example can be contrasted with an employer providing taxis home on occasions to employees who are required to work late from time to time. The taxi is provided because they have worked late and so the exemption does not apply. However, the late night taxi exemption may apply.

Close company annual exempt amount:

The example provided here relates to a company which provides a director with 3 gifts that cost £30, £40 and £50 respectively in a single tax year. The total cost of the gifts 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 (subject to all the conditions for the exemption being met).

The above examples are useful in outlining when the conditions set out in the legislation may or may not apply.

If you require further advice on the applicability of the new trivial benefits in kind exemption, please do not hesitate to contact us.