COMPLIANCE
Anything but trivial?
Emma Rawson, technical officer, the Association of Taxation Technicians (ATT), discusses the particulars of trivial benefits and the potential pitfalls to look out for S ince April 2016, we’ve had a specific tax exemption for ‘trivial benefits’ provided to employees. Although qualify as a trivial benefit. Whether or not a benefit is cash should be straightforward, but one thing to watch out for is where an employee is reimbursed for a purchase, rather than the employer
Cost no more than £50 There are some important points to note regarding the £50 limit. Firstly, it’s a threshold and not an allowance – if a benefit costs (say) £55 then the full amount won’t qualify (and not just the extra £5). In addition, the limit applies: l per employee l to the cost to the employer of providing the benefit (i.e., considering any discount available to the employer); and l is value-added tax inclusive. Where a benefit is provided to several employees and it’s impractical to calculate the cost for each one, the average cost per employee can be used instead. HMRC’s manuals set out several examples as to how this might work in practice, for example, with group meals or providing a turkey at Christmas. The manuals can be accessed here: http://ow.ly/Ixhg50L783p. Where several benefits are provided together, HMRC’s view is that the total value of these needs to be considered. For example, if an employee receives a £35 bottle of wine and a £20 box of chocolates for their birthday, this is viewed as a single benefit with a value of £55 and therefore won’t qualify as a trivial benefit. Such ‘linked benefits’ don’t necessarily have to be given at the same time. For example, HMRC says that providing an employee with a £10 gift card, and then subsequently topping it up with a further £10 on more than four occasions will not qualify as a trivial benefit.
this is a helpful and relatively generous exemption, there are several potential pitfalls which employers and their advisers need to be aware of. What are the rules? The trivial benefits rules can be found in Section 323A of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003. This sets out that, to be exempt, an employee benefit must meet the following four conditions: l it must not be cash, or a cash voucher l it must cost no more than £50 l it must not be provided under salary sacrifice arrangements, or to meet any other contractual obligation l it mustn’t be provided in recognition of particular services performed by the employee. In addition, if the employer is a close company (broadly one under the control of five or fewer individuals and their associates, or any number of directors) then an additional £300 per tax year limit applies to benefits provided to directors, office holders and their families and households. We’ll consider each of these conditions in turn below, highlighting some of the more unusual aspects. Cash and cash vouchers A benefit provided to an employee in the form of cash, or a cash voucher, cannot
paying for it directly. HM Revenue and Customs’ (HMRC’s) view is that any reimbursement is a payment of cash, and therefore cannot qualify as a trivial benefit. Instead, the amount reimbursed is taxable as earnings, subject to any deduction the employee may be entitled to. Cash vouchers are defined (in Section 75 of ITEPA 2003) as any voucher, stamp or similar document capable of being exchanged for a sum of money greater than, equal to, or not substantially less than the amount paid for it. Therefore, there’s nothing to stop normal online or high street shopping vouchers being classed as a trivial benefit, provided they can only be exchanged for goods (and not cash) and the remaining conditions are met. view is that any reimbursement is a payment of cash, and therefore cannot qualify as a trivial benefit HM Revenue and Customs’
| Professional in Payroll, Pensions and Reward | November 2022 | Issue 85 32
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