PAYE vs Limited Company
For the current tax year, HMRC have introduced a new exemption that removes the liability of income tax for certain low valued Benefits in Kind (‘Trivial BiKs’)
This means its easier to be a generous employer without the gesture backfiring and penalising your employees.
What is allowed?
To qualify for exemption, a trivial benefit has to satisfy the following conditions:
- No more than £50 per benefit (or average of £50 if the benefit is provided to a group of employees and it is not possible to work out the exact cost for each individual).
- Not cash or a cash voucher (but gift vouchers are allowed).
- There is no entitlement to the benefit as part of the employee’s contract (including salary sacrifice schemes).
- It is not provided in recognition of a work related service or employment duty.
- In close companies there is a limit on the total trivial benefits exemption of £300 per tax year per director (or office holder). Normal employees don’t have this £300 limit.
Broadly, a company is “close” if It is privately owned and controlled by five or fewer individual participators (shareholder, director or loan creditor)
What kind of things can be included as trivial benefits?
HMRC has provided a number of example scenarios where this exemption can be used to mitigate tax liabilities.
Scenario 1: Celebrating Birthdays
You take a group of your employees out for a meal to celebrate their birthdays. Five employees attend the meal at a cost to you of £240. Each of the employees choose a different selection of food and drinks. The cost per head works out at £48, if the bill is split evenly. This can be covered by the exemption since the cost for each individual does not exceed the trivial benefit limit.
Scenario 2: Staff Parties
As director, you decide you want to provide your employees with two annual functions, one at Christmas and one in the summer. The first function costs £140 a head and the second costs £40. The first function is exempt by virtue of the annual parties function exemption. The second would be considered a trivial benefit in kind because it does not exceed £50.
Scenario 3: Director Benefits
As a director you are provided with 3 bottles of wine that cost £30, £40 and £50 respectively in a single tax year. The total cost of the benefits is £120. The total cost does not exceed the annual exempt amount of £300 and all of the benefits can be covered by the exemption.
What is not allowed?
Based on the HMRC Guidance document, some examples of what is not allowed under the exemption include:
- Providing a working lunch for employees (because this is related to their employment).
- Gifts, incentives or events related to performance targets or results.
- Gifts, incentives or events in relation to employment services e.g. team-building events.
- Taxis when employees work late
In Summary
This benefit in kind exemption allows for considerable flexibility for minimising business tax liabilities. If you would like to discuss further ways this can be used to mitigate the costs of rewarding staff, please contact us.
Further examples can be found here:
Related posts
