First the bad news, all benefits in kind are taxable. Now for the good news. HMRC have moved the goalposts, unusually in our favour! Now you have picked yourself up off the floor I will explain in detail.
It has taken longer than expected, however on 11 February 2016, HMRC finally issued their guidance on Trivial Benefits provided to employees which applies from 6 April 2016. A search of HMRC’s website will, however, only provide draft guidance. Despite their reluctance to include the actual guidance in their own instructions, and despite the fact that the introduction of the new rules was unexpectedly withdrawn at the last minute, in 2015, it is now finally in place. The statutory exemption allows for trivial benefits costing £50 or less per tax year to be provided to employees.
To be exempt, and therefore tax free, the following conditions will need to be met
- The cost of providing the benefit (including VAT) does not exceed £50, or if the benefit is provided to a group of employees, the average cost does not exceed £50 per employee
- The benefit is not in the form of cash or a cash voucher
- The benefit is not provided as part of a contractual obligation or salary sacrifice arrangement
The benefit is not provided in recognition of services performed by the employee as part of their employment duties e.g. as a reward for meeting performance targets.
For directors and other office holders of close companies and members of their families and household, there will be an overall limit of £300 per year for the total trivial benefits they can receive.
Examples of costs which may be covered by the new exemption are
- An employer gifting employees a bottle of wine or a non-cash voucher worth up to £50 for Christmas
- A staff event costing no more than £50 per person that doesn’t meet the usual criteria for an event to be exempt (i.e. not an annual function or an event where not all the staff are invited)
Flowers or similar gifts on occasions such as marriage, birth of a child, illness etc.
I fondly recall having arguments with HMRC over a client providing a £30 turkey at Christmas for each employee, and I will miss those ‘discussions’. However this is a positive move by HMRC to take a more realistic approach to what is a commercial decision by many employers to treat their employees during the year.
If any further guidance or information is required please let us know.