What are Trivial Benefits in Tax?
Many people see the appeal of having their own limited company, whether this is because of their status or perceived image to their friends. Or even maybe because it is the most logical thing to do from a tax planning perspective. This is largely due to the corporate rates of tax being significantly lower than compared to operating as a sole trader. There is also a misconception that as it is your own company, you can start to put your own expenses through without any negative tax consequence (which is most certainly not the case).
However, recent changes to what are known as trivial benefits have meant that there are certain ways of extracting value out of the company without incurring unnecessary tax charges.
Previously, providing gifts to employees etc. may have incurred additional Benefit in Kind tax charges through additional income tax and class 1A NIC charges. However, HMRC have recently introduced a statutory exemption that has led to these ‘low value’ benefits in kind becoming exempt of income tax and NICs.
The main reason for this measure was because administering income tax and NICs on benefits of small monetary value were burdensome and time consuming for both the taxpayer and HMRC.
As such, these ‘Trivial Benefits’ now fall within the statutory exemption and as such, can be drawn from the company with no tax or NIC charge. A list of a few items that fall into this category are as follows:
- Taking a group of employees out for a meal to celebrate a birthday.
- Buying employees a Christmas gift each.
- Flowers on the birth of a new born baby.
- Gift vouchers (i.e. John Lewis), but not cash or a cash voucher.
In general, the cap is £50 (inclusive of VAT) per trivial benefit with no annual limit.
For directors or other office holders, this is capped to an annual amount of £300 (inclusive of VAT) and still subject to a £50 cap per benefit.
As with all general record keeping requirements, it is strongly advised that if you do indeed provide trivial benefits (especially the gift cards), that you keep an accurate record of who, when and the amount of benefit provided.
Of course if you wish to discuss the changes to the trivial benefits in more detail, then please do contact one of our tax specialists on 020 8429 9245 or email email@example.com where they will be more than happy to help.