How to Save Tax on Trivial Benefits for Employers?

If retaining employees is on your mind or wish to earn their goodwill by providing them incentives, in such a case, you’re not alone as all corporates engage themselves in giving gifts to employees on an increasingly basis. But while providing them such incentives most of the people fail to acknowledge that the incentives being administered by them are nothing but a sort of income. So, employers prefer to maintain a particular threshold. If they are too kind with their gifts, the recipient would be asked for paying a benefit in kind tax and could face punishment for accepting the gift.

However, U.K businesses can take a respite with Trivial Benefits in Kind Exemption. A much sought after incorporation to the Finance Bill, it eases the entire process by dividing down what would and what wouldn’t constitute a breach of the tax law. To be precise, it simply makes whole lot easier to provide gifts in a grateful manner knowing that they won’t be dependent to any form of taxation.

As the name suggests, Her Majesty’s Revenue and Customs (HMRC) consider trivial benefits as a small form of benefits. Under no circumstances, should they be preferred as ‘benefits in kind’—a form of benefits which are more considerable in nature and can go on to incorporate a membership for a gym, can be provided by the company and so on. Somewhat one would necessarily call as plain taxable benefits.  In other way, Tax on trivial benefits necessarily means a majority of gifts provided to employees or the entertainment given to the employees would be tax free along with national insurance.

Along with time their also has been a change in rules on trivial benefits. That means company directors or leaders now have the power to be more kind towards themselves and the staff. However, as it always goes with HMRC, there are stipulated set of rules and regulations that one needs to adhere to avoid getting taxed or being asked to go for national insurance.

As with new rules on its place since April 2016, employers have the flexibility to offer the known ‘trivial benefits’ to their employees without providing a declaration to HMRC.

What to look as trivial benefits and what’s the ceiling before a cost becomes a taxable benefit?

Employers which provide benefits to their staff in the form of beverages like coffee, tea and bottled water can be treated as trivial benefits. Besides the occasional gifts at the workplace such as a box of chocolates, birthday flowers or a Thanksgiving turkey for Christmas can also be involved as trivial benefits. No matter, employers have always been giving these kind of benefits to their employees for some time now.

Across the years, finding various ways for making the organizational revenues go higher has always been a necessity. Her Majesty’s Revenue and Customs HMRC outline the guidance which provides you a sound understanding on how employers can get the statutory exemption for trivial employer-driven benefits. Provided the following conditions are required to be met:

  1. Benefits are below £500.
  2. Benefits can’t be claimed as cash or cash voucher
  3. Contractual obligation can’t be treated as a part of the Trivial Benefits
  4. A specific service performed by the employee and a benefit in lieu of it can’t be preferred.
  5. Exemption is dependent on an annual cap of £300 wherein the employer is a close company and benefit is availed by the director (or to households or family members).

If the above mentioned conditions are met and the cost is less than £50 or the average is below £50 per employee, the exemption is declared by the employer anything on the form P11D.  Do note that contractors who work in a close company (a limited company operated by 5 or fewer shareholders) an annual limit of £300 is set for trivial benefits.

Circumstances where Trivial Benefits exemptions can be used

There are various situations laid down by the HMRC where the exemption can help in avoiding tax liabilities:

Birthday Celebrations

A group of employees are taken out by their employers for a meal on their Birthdays. Suppose, 5 employees attend the meal which comes at a total cost of £240. The cost per person comes out to be £48 with every employee selecting a different variations of food and drinks. Now if the bill is divided evenly the exemption will come in effect as the individual cost remains within the limit of trivial benefit.

Benefits for the Director

For example, you are your own company’s director and you are given with 3 bottles of wine which costs about £30, £40 and £50 in a tax year. Now summing up, the total cost of benefits comes around £120. Here the total cost does not exceed the annual exempt amount of £300 and as a result all the benefits get covered up by the exemption.

But the officeholders/directors of a close company are dependent on particular rules(a limited company operated by five or fewer shareholders). Those being:

  1. Setting up of annual cap of £300 for trivial benefits by HMRC.
  2. Directors can also proceed and give trivial benefits to a family member or household and claim these as a form of director’s allowance for the taxation year.
  3. The director claims trivial benefits which are in addition to the ‘annual event’ or staff entertaining allowance. It is inclusive of the costs for drinks, stays, transport and meals and are set up at £150.

Office Parties

Suppose, a director wishes to provide office employees with 2 functions, one for the summer and other for Christmas. With the 1st function costing £40 and other costing £140 a head. Now it is an annual party function and 1st function is virtually exempted. Coming to the first it would be treated as a trivial benefit as the cost does not exceed £50.

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