We have many clients who like to give their employees little treats and perks; contributing to making the business a great place to work. We then come along at the year end and quiz them about the detail of each expense to try and determine if it is taxable on the employee or not! What was intended as a generous gesture can end up resulting in the employee paying extra tax.
However, the Trivial Benefits exemption that was announced in the 2016 Finance Bill will make it easier to be a generous employer without the potentially negative tax effects. With Christmas just around the corner this legislation gives employers more options.
A Trivial Benefit has to satisfy the following criteria:-
- No more than £50 per benefit (or an average of £50 if the benefit is provided to a group of employees and it is not possible to work out the exact cost per employee)
- Not cash or a cash voucher (but shop gift vouchers are allowed)
- The benefit is not provided in recognition of work done or an employment duty
- There is no contractual entitlement to the benefit
If any of these conditions are not satisfied, the benefit is taxed in the normal way, subject to any other exemption (such as the annual staff function exemption). Importantly, if the cost exceeds the £50 limit, the whole of the benefit is taxed, not just the excess.
For non-director employees, the employer can provide as many trivial benefits per year as it likes – there is no annual limit. For directors there is a limit of £300 per tax year. To be clear a director can receive up to 6 trivial benefits of £50 per tax year, or more if smaller denominations – just no more than £300 in total per tax year.
The trivial benefits do not count towards taxable income and need not be reported on a PIID or P9D.
Employers who hold “staff awards” evenings need to be careful as vouchers or gifts given in recognition of services provided do not qualify for the exemption.
The new tax exemption only applies to the tax that the employee would suffer – there is no change to the tax treatment for the employer in the corporation tax computation. For example, a birthday meal may still qualify as entertaining which is not deductible for corporation tax.
Overall the changes to the rules provide greater clarity and, will allow employers to give staff high street vouchers, especially at Christmas time, without the negative tax implications.