'Trivial' Benefits in Kind; changes from April 2015

The Autumn Statement included changes to the tax treatment of benefits in kind. The first of these takes effect from 6 April 2015, when a new statutory exemption is introduced for trivial benefits in kind costing less than £50.

Currently, there is no minimum cost threshold below which benefits are disregarded for tax purposes and employers have to report all benefits, however small, on Form P11D or through a PAYE settlement agreement (PSA). In practice, however, an employer can agree with HMRC that certain benefits are to be treated by concession as trivial and may therefore be excluded from income tax and annual reporting.

But what is trivial? In deciding whether benefits can be treated as trivial, HMRC takes into account factors such as the cost of providing the benefit, the reason for providing it and the administrative burden created for both employer and HMRC if the benefit had to be reported as a taxable item. There are several examples of benefits that would be considered trivial; tea and coffee, flowers for a special occasion, a bottle of wine or chocolates.

The proposed new regime provides a statutory exemption from tax and no Class 1 or Class 1A National Insurance liability, for qualifying trivial benefits costing £50 or less. Where the exemption applies, employers will no longer have to report such benefits on either Form P11D or via PSAs at the year end.

The exemption will be available if all the following conditions are met:

• The benefit must not be cash or a voucher exchangeable for cash
• It cannot be used in conjunction with relevant salary sacrifice arrangements or any other contractual obligation
• It must not be provided in recognition of particular services performed or anticipated in the course of the employment.
• A trivial benefit will qualify for exemption if the qualifying gift is in recognition of a life event such as the employee’s birthday, wedding or new baby.
• Non-cash vouchers can be trivial benefits if they meet all the relevant conditions. This means that a client could give its employees high street retail vouchers of up to £50 as, for example, a birthday or Christmas present, and these would be exempt.

Employers should review their PSAs now to identify benefits under £50 that would be classed as trivial from April 2015. If there are any, you could consider obtaining HMRC’s agreement as to whether these could also be treated as trivial for the 2014/15 tax year and cut the administrative burden this year. If you require more details, please give us a call to discuss this further.