An exemption that's far from trivial

17 February 2016

 Jackie Hall

 After a false start last year, we expect the new exemption for trivial benefits to finally come into force on 6 April 2016. The new exemption covers benefits in kind provided to employees where the cost of providing the benefit is no more than £50. In theory, employers should benefit from the simplification but with thirteen pages of new guidance now released, there are fears that unnecessary complexity may erode the anticipated administrative savings.

After a false start last year it looks like the new exemption for trivial benefits will finally come into force on 6 April 2016.

The new exemption covers benefits in kind provided to employees where the cost of providing the benefit is no more than £50 (inclusive of VAT) and is not cash or a cash voucher.

If the cost of providing the benefit is more than £50 the full amount is taxable not just the excess. In addition the benefit must not be provided in recognition of an employee’s services as part of their employment nor as part of any contractual obligation including salary sacrifice arrangements.

There is also an annual limit, where the employer is a close company, which caps the exemption at £300 in any tax year for directors and officers (or members of their family or household) receiving otherwise qualifying trivial benefits.

Whilst the benefit in these circumstances qualifies as 'trivial' under the new proposed legislation the guidance issued by HMRC last week is certainly not.

Extending to almost thirteen pages the guidance seems out of proportion to the nature of the benefit and the four conditions required to be met for the benefit to be exempt.

Amongst the numerous examples is one explaining how to calculate the average cost of the Christmas turkey. Under the current rules this would commonly be accepted as trivial by HMRC, regardless of cost, as there is no current monetary limit on the non-statutory treatment of benefits that are trivial in amount.

In the ‘good old days’ inspectors were instructed by the (less than four pages of) guidance in their manuals to use common sense and judgement and to treat all factors objectively when determining whether a particular benefit could be treated as trivial.

Employers should benefit from considerable administrative savings once the new statutory exemption is introduced and there is more certainty over what will and will not qualify. However it does seem that now discretion is not permitted and the only way forward is to govern by complicated rules. It must be hoped that the application of such detailed rules does not erode the benefit of an otherwise not so trivial exemption.

If you would like to discuss any of the points raised here further, please contact Jackie Hall or your usual RSM contact.