The majority of small gifts and entertainment provided to employees, such as those gifted on the occasion of the birth of a child or Christmas, no longer need to be included in end of year reporting if certain conditions are met.
This means employers need to review their records in more detail to pull together the correct information for P11Ds and PSA, and to ensure costs are not excluded that are then subsequently challenged by HMRC as being taxable.
The rules state that a Benefit in kind (BiK) provided by an employer to an employee is exempt from tax as a trivial benefit, if all the following conditions are satisfied:
The exemption has a further cap of a total cost of £300 in the tax year if
Class 1A NICs can only arise where there is an income tax charge. So, where a benefit is exempt from tax under the trivial BiK rules, there will automatically be no Class 1A NIC liability.
The exemption applies equally to benefits provided to the employee or to a member of the employee’s family or household.
It also applies where the trivial benefit is provided on behalf of the employer by a third party. For example, where the benefit is provided through a management services company within a group of companies or by a third party business where management services have been outsourced, provided the cost of the benefit is ultimately borne by the employer.
As for all BiKs, when determining the cost of the benefit for the purposes of the exemption you need to use the VAT inclusive amount.
If a benefit is not exempt, the full value will be subject to the normal benefit rules.
For example, a bunch of flowers costing £55 (including delivery) to an employee who is off sick will be taxable in full because the total cost exceeds £50. It is not just the excess over £50 that gets taxed. Before 6 April 23016, those same flowers would not have been taxed.
As a result the flowers will have to be added to the employee’s P11D. Alternatively if the employer wants to provide them to the employee free of tax, they will need to be added to the PSA.
But it’s not all bad news. There are many more situations where the new rules provide greater clarity on what is or is not taxable. The following examples show the impact of the rules post 6 April 2016:
Including amounts in a PSA is an expensive thing for an employer to do. The tax and national insurance paid by an employer on behalf of their employees is at the following effective rates:
Employers should have robust process and controls in place to validate and support how they have compiled the data that forms the basis of the P11Ds and PSA.