From April 2016, HMRC will be introducing clearer legislation on trivial benefits.

What is ‘tax allowable’ to give to staff can be a bit of a minefield to the majority of many employers. What can be intended as a nice gesture to reward staff can end up costing the employer more than anticipated and can also be an additional administrative burden. We all know that HMRC don’t like people to receive something for nothing; where there’s a benefit to an individual they want to benefit also by trying to get additional tax!

The current rules state that if you provide something to an employee without prior consent by HMRC then that ‘trivial’ gift is taxable as a benefit in kind. If you provide employees with a bunch of flowers and a box of chocolates on their birthday without HMRC agreement then this could be classed as a benefit in kind and you are running the risk that there will be additional tax & national insurance to pay. Not many people are aware of this and the rules state HMRC could request money from you for those birthday flowers you bought for your practice manager if they wanted to.

However, the great news is that new legislation from April 2016 allows a statutory exemption for trivial benefits. 

The catch (if you can call it that)? In order for it to be considered “trivial” the following must apply:

• The benefit must not exceed £50
• It must not be cash or a cash voucher
• The benefit must relate to a non-work related reason e.g. birthday or birth of a child
• It must not be provided by way of contractual obligation of salary sacrifice arrangement

For close companies (i.e. those privately owned and controlled by 5 or fewer directors) there is a cap of £300 on the maximum amount of benefit within the year. This £300 applies to all directors and also to family members who may be employees.

This seems to be (for once!) a piece of legislation that makes sense for both HMRC and employers…Yes, HMRC may lose out on tax, but in reality, this is only expected to be £5-£10m a year and the majority of this will be recuperated in decreased administrative costs for HMRC. And, more importantly, it will give employers and employees peace of mind that the box of chocolates received at Christmas won’t be coming with an additional price tag!

If you would like to become an accountancy client or you would like to discuss how you could save tax, please call 01872 300232 or email us at hello@hivebusiness.co.uk.