Using the trivial benefits exemptionSource: HM Revenue & Customs | | 14/06/2017
The trivial benefits in kind (BiK) regime came into effect in April 2016. This statutory exemption applies to small non-cash benefits like a bottle of wine or a bouquet of flowers given occasionally to employees or any other benefit in kind classed as 'trivial' that falls within the exemption.
Although the benefit is defined as ‘trivial’, employers should remember that this offers a great opportunity to give small rewards to employees. To qualify, gifts must not be given as a reward for services performed or as part of the employees’ duties. However, gifts to employees on milestone events such as the birth of a child or a marriage or other gestures of goodwill would usually qualify.
The employer also benefits as the trivial benefits do not have to be included in PAYE settlement agreements or disclosed on P11D forms. There is also a matching exemption from Class 1 National Insurance contributions.
The tax exemption applies to trivial BiKs where the BiK:
- is not cash or a cash-voucher; and
- costs £50 or less; and
- is not provided as part of a salary sacrifice or other contractual arrangement; and
- is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.
The rules also allow directors or other office-holders of small companies and their families to benefit, although an annual cap of £300 aplies. This would limit gifts to these individuals to six a year at £50 each. The £300 cap does not apply to other employees. If the £50 limit is exceeded for any gift, the full value of the benefit will be taxable.
This trivial benefits exemption helps simplify the treatment of BiKs whilst at the same time offering a tax efficient way to give small gifts to employees and even to treat directors and their families. Accordingly, it should be viewed as a worthy component of any strategy that examines tax efficient ways for directors to withdraw funds from a small company for their own benefit, and as a way to create goodwill towards their workforce.
If you would like to re-examine your profits extraction strategies we would be delighted to help. Although the use of trivial benefits is limited for directors, as part of a coordinated campaign it is a worthy tax planning addition.
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