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Trivial benefits

Following changes in legislation, as from 6/4/16, within certain parameters, you can claim up to £50 x 6 times per tax year tax-free from your company (as a  director or company secretary of a close company – which includes your company) provided that:

  • the benefit is not cash or a cash voucher (but gift vouchers e.g. for a shop, are allowed)
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements) (see EIM21867)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services) (see EIM21868)

Food is no longer mentioned so I interpret it that a turkey is now acceptable as a tax-free trivial benefit! (so long as it costs under £50). If the individual benefit exceeds £50 (or an average of £50 per head where the gift is spread amongst two or more people), the whole amount then comes taxable as a benefit in kind, not just the excess over £50.

What is allowed?

Typical examples of exempt items might include:

  • Provision of workplace tea and coffee for staff
  • Flowers or similar gifts on occasions such as marriage, birth of a child, illness etc.
  • Seasonal gifts such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas 

What is not allowed? 

Based on the HMRC Guidance document, (and I assume that “employee” is the same as “worker” or “officer”), some examples of what is not allowed under the exemption include:

  1. Providing a working lunch for employees (because this is related to their employment).
  2. Gifts, incentives or events related to performance targets or results.
  3. Gifts, incentives or events in relation to employment services e.g. team-building events.
  4. Taxis when employees work late

Entertaining and Gifts

The new tax exemption only applies to the tax that the employee would otherwise suffer due to benefits in kind. There is no change to the tax you can claim in your company tax return. For example a birthday meal may well still count as entertaining, which is not allowed for corporation tax.

Examples

Examples given by HMRC:

The following examples illustrate how to apply the annual exempt amount (assume that the company is a close company and all benefits otherwise meet the trivial benefit qualifying conditions):

Example I

Company I provides a director with 3 benefits 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.

Example J

Company J provides a director with 7 benefits that each cost £50 each during the tax year. The total cost is £350 which exceeds the annual exempt amount. The last benefit is not exempt from tax.

Example K

Company K provides a director with 8 benefits in the tax year. The first 5 benefits during the tax year cost £50 each. In date order, the next cost £40, £45 and £10 respectively. The total cost of the first 6 benefits is £290 which is less than the annual exempt amount so they are all exempt. The £45 benefit brings the total cost to £335 which exceeds the annual exempt amount. Therefore, the £45 benefit is not exempt, but is not counted towards the annual exempt amount. The £10 benefit brings the total cost to £300 which does not exceed the annual exempt amount so it is also exempt.

I haven’t heard of any investigation by HMRC which has challenged any claims as yet, with the legislation being new but would strongly advise caution when arranging for your company to pay for gifts – I interpret the spirit of the legislation being for trivial inexpensive items to be given to workers to set a positive tone and atmosphere in the workplace. HMRC will certainly clamp down on any abuse.

By graeme on November 25, 2016


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