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Trivial Benefit Exemption for payroll

on Friday, 03 April 2015.

Currently, HMRC accept small gifts to employees as being trivial in nature (such as a bouquet of flowers to mark an event or to someone in hospital) where the cost of collecting the tax is more than the tax being collected. Unfortunately, HMRC have never set a value on the word ?trivial? which has in turn left employers confused. Indeed, employers should agree with HMRC how the word trivial is to be valued and that in itself has let to inconsistencies of approach.

Currently, HMRC accept small gifts to employees as being trivial in nature (such as a bouquet of flowers to mark an event or to someone in hospital) where the cost of collecting the tax is more than the tax being collected. Unfortunately, HMRC have never set a value on the word ?trivial? which has in turn left employers confused. Indeed, employers should agree with HMRC how the word trivial is to be valued and that in itself has let to inconsistencies of approach.

The Office of Tax Simplification (OTS) carried out a review of Employee Benefits and Expenses, and published their findings and recommendations in January 2014 and one of their recommendations was the introduction of a statutory definition of a trivial benefit in kind, supplemented by a set limit to remove the confusion and remove the requirement to report small value benefits on form P11D.

The Government accepted the OTS recommendation and announced that they would introduce a statutory exemption for these trivial benefits. The result being that benefits in kind falling within the exemption would not be subject to tax or NICs and would not have to be reported to HMRC.

Following a consultation in 2014 it was announced that the principles would be set out and the exemption would come into effect from April 2015.

The principles would be as follows:

It will not include cash or a replacement for cash such as a voucher or token. Although the Government recognises that an employer may feel that a small value voucher would be a suitable gift, it does not want to allow an employer to disguise a payment of earnings as trivial benefits in kind to benefit unfairly from the exemption.

Any ?trivial? benefit in kind must not be provided on a continual or regular basis across a tax year but should, instead, be a one-off or irregular item.

There should be no pre-arranged entitlement to a trivial benefit in kind: typical examples of a ?trivial? benefit in kind might be the gift of a bottle of wine for a job well done, or a small gift, perhaps when an employee is ill or to mark a special celebration.

It must be possible for an employer to determine a trivial benefit in kind, and whether any liability to tax and NICs arises, in ?real time?. This will be particularly important where the employer decides to adopt voluntary payrolling of benefits in kind, with the taxable value of non-trivial benefits in kind put through the payroll process.

It will not be possible for an employer to use any trivial benefits in kind exemption in conjunction with salary sacrifice arrangements.

If a benefit in kind is already covered by a statutory tax exemption then these arrangements will not be disturbed: the trivial benefits in kind exemption will not be necessary for these types of Benefits in kind.

In addition, a ?50 figure was set on the word trivial.

On 10 December 2014 HMRC announced that the exemption would apply from 6 April 2015.

So, it came as a great surprise to hear today that Parliament had decided not to legislate for the new exemption to income tax for trivial benefits in kind in the Finance Bill 2015 and instead would legislate in a future Finance Bill. The result is that the income tax exemption will not come into force from 6 April 2015 as previously advised.

It is to be regretted that such a simple measure which would in the words of HMRC was ?not expected to have any significant economic impact?

We have been supporting and promoting the exemption for some time on our courses only for it to be withdrawn at the 11th hour with no explanation. We just hope that this is not the thin end of the wedge because the work and effort put in by the OTS has begun to show dividends.