A regular treat – making the most of the trivial benefits exemption

Knowledge base from Boox

By Lynne Gowers on 7th March 2018

A regular treat – making the most of the trivial benefits exemption

A new tax exemption was introduced with effect from 6 April 2016 which enables employees to enjoy ‘trivial’ benefits tax-free. As is usually the case, availability of the exemption depends on certain conditions being met.

The conditions

For the exemption to apply, all of the following conditions must be satisfied.

• The cost of providing the benefit is not more than £50.
• The benefit is not cash or a cash voucher.
• The employee is not entitled to a benefit as part of any contractual obligation (including a salary sacrifice arrangement).
• The benefit is not provided in recognition of particular services performed by the employee as part of their job.

Where the benefit is provided to a group of employees and it is impracticable to work out the exact cost per person, the £50 ceiling is taken as met if the average cost per employee is not more than £50.

Close companies – annual cap

A close company = a limited company with five or fewer ‘participators’, or a limited company of which all the ‘participators’ are also directors. For most small limited companies, ‘participators’ will just mean shareholders.

A limit is placed on the value of tax-free trivial benefits that can be enjoyed each year by the director or other office holder of a close company.

Where the employer is a close company, an annual cap – known as the annual exempt amount – applies. This is set at £300 for each tax year.
The cap applies to benefits provided to a director or office holder. Where a benefit is provided to a member of their family or household, this is treated as being provided to the director or office holder and counts towards their annual exempt amount.

It should be noted that the other conditions set out above apply equally to close companies; and thus, only benefits costing not more than £50 per head which are not cash or cash vouchers can be exempt, as long as they fall within the annual exempt amount.

Where a company is not close, there is no limit on the total value of trivial benefits that can be provided each year, as long as each individual benefit costs no more than £50 and the other qualifying conditions are met.

Using the exemption

The exemption can be used to provide employees with regular or one-off treats. For example, birthday and Christmas gifts (up to the £50 limit) can be provided tax-free within the terms of the exemption.

Example 1

Julie’s employer (which is not a close company) believes in treating staff well to keep them on side. Staff are provided with a fruit basket each Friday. The basket costs £25. Staff receive 50 fruit baskets each year. The total cost is £1,250. As the terms of the exemption are met, the benefit is tax-free.
As the company is not close, the annual cap of £300 does not apply.

Example 2

Jenny is the director of her personal company, which is close. She is aware of the trivial benefit exemption and uses it to buy herself an item of clothing costing just under £50 every other month. Each item is within the £50 limit and the total annual amount is within the £300 annual exempt amount applying to close company directors.
She can enjoy the benefits tax-free, while her company enjoys a corporation tax deduction for their cost.

Use the exemption

While the exemption only covers low-cost items, it can be used to provide employees with regular treats. The costs of providing the benefits is tax-deductible when working out the employer’s taxable profits.

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