You can only very rarely look at the tax system and admire it’s generosity towards payments to employees.
Whenever possible, therefore, where this is possible then consideration should at least be given to taking advantage, however small that advantage may be. One exemption which is frequently overlooked is the exemption from income tax and National Insurance of “trivial benefits”.
A trivial benefit is one which costs the employer less than £50 to provide. Whilst this may at first seem to be too trivial to bother with, this may change when it becomes apparent that this is not per employee but per benefit. For example, providing a Christmas Gift costing £45, a Birthday Gift costing £45, a Birthday Gift to the employee’s partner of £45, and a further gift of £45 on the birth of a child, adds up to a total of £180. However, as each is below £50 then they are all exempt from tax. This is equivalent to providing a gross salary of about £265 at an after-tax cost to the employer of about £145.
There a number of conditions that must be met for the exemption to apply:
- The benefit must not be cash or a cash voucher. In other words, the voucher must be exchangeable for cash.
- The cost of the benefit must not exceed £50. If it does then the whole of the benefit is taxable and not just the excess above £50.
- There must not be a contractual obligation to provide the benefit, nor must it be part of a relevant salary sacrifice arrangement. Care must be taken not to create an implied contractual obligation, for instance by providing a trivial benefit on a recurring basis. Normally, it seems unlikely that Christmas and Birthday gifts would be challenged.
- The benefit must not be provided for particular employment services performed by an employee as part of their duties, nor in anticipation thereof. Benefits may be challenged under this provision if they are provided on a regular or frequent basis, or the benefits in total are overly generous.
- The costs of the benefits to any director or office holder, including any benefit provided to their family members who are not, themselves, employees must not exceed £300 per annum. If the total cost of benefits exceeds £300 then the total cost of the benefit that takes the total above £300 becomes taxable, as does any further benefits provided in that year. For instance, an employer provides trivial benefits to a director and their family members totalling £260 and then provides a further benefit costing £49 taking the total cost to £309. As that takes the total above £300 then the whole cost of £49 is taxable, not just the surplus of £9, as well as any further trivial benefits provided during that tax year.
Never again say that the taxman is less than generous!
WatkinsonBlack – Accountants Who Care For Clients Who Matter
We have considerable experience in all areas of taxation and business services, including providing a very cost-effective payroll bureau service.
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