24th March 2016
Finance Act 2016 will introduce a new statutory exemption for “trivial” benefits costing £50 or less. This will apply from April 2016.
To be exempt, the following conditions will need to be met:
- The cost of providing the benefit (including VAT) does not exceed £50 or if the benefit is provided to a group of employees, the average cost does not exceed £50 per employee.
- The benefit is not in the form of cash or a cash voucher.
- The benefit is not provided as part of a contractual obligation or salary sacrifice arrangement.
- The benefit is not provided in recognition of services performed by the employee as part of their employment duties e.g. as a reward for meeting performance targets.
For directors and other office holders of close companies and members of their families or households, there will be an overall limit of £300 per year for the total trivial benefits they can receive.
What This Means:
Where benefits meet the conditions for the exemption, they will be exempt from tax and NIC and will no longer need to be reported on the employee’s P11d or included in a PAYE Settlement Agreement.
Examples of costs which could be covered by the new exemption:
- An employer gifting employees a bottle of wine or a non-cash gift voucher worth up to £50 for Christmas.
- A staff event costing no more than £50 per person that doesn’t meet the usual criteria for an event to be exempt (e.g. not all staff are invited).
From 6 April 2016, it will be possible to payroll benefits and expenses using HMRC’s new Payrolling Benefits In Kind (PBIK) service. This means that employees will be taxed on their benefits in real time instead of through a restriction to their tax code in a later tax year.
Any payrolled benefits or expenses will no longer have to be reported on the employee’s P11d, although an adjustment will be required on the company’s P11d(b) to collect the Class 1A NIC due. Employers will also have the option of payrolling some benefits, while continuing to report others on form P11d or of excluding those employees who don’t want their benefits payrolled.
The only benefits that it won’t be possible to payroll are:
- Vouchers and credit cards
- Living accommodation
- Interest free or low interest loans.
As announced in the recent Budget, from 6 April 2017 it will also be possible to payroll non-cash vouchers and credit tokens.
Please note that any employers wishing to payroll benefits or expenses in 2016/17 will need to register with HMRC by 5 April 2016 at the latest.
How It Works:
The employer will need to calculate the cash equivalent of each benefit (as they would when preparing a P11d) and then divide that cost by the number of salary payments the employee will receive in the tax year. This notional amount will then be added to the employee’s salary each month.
An employee receives a monthly salary of £2,000 and their medical benefit for the year is £600.
A notional £50 (£600 divided by 12 months) will need to be added to their salary each month. The new salary of £2,050 will then be subject to tax through PAYE.