With the tax year almost half-way through, directors of your corporate clients can take advantage of tax and NI-free trivial benefits. What advice can you give them to ensure they get the maximum advantage from the exemption?
Since April 2016 employers have been able to provide any number of small (trivial) benefits in kind to their employees without them counting as taxable perks. HMRC relies on three factors to prevent the exemption being exploited:
• The exemption doesn't apply if the benefit is given as a substitute for normal wages.
• Employers are cost conscious and so won't want to pay for vast numbers of perks for employees.
• Directors of companies probably won't worry about the second point and so might be tempted to take a considerable number of exempt perks for themselves. Therefore, the exemption is capped for directors of close companies (broadly those controlled by five or fewer individuals)
What's the cap?
The exemption for directors is limited to £300 per year, and for employees and directors to the value of £50 per perk. This means a director could take up to six tax and NI-free perks worth £50 or less.
Trap - The rules don't prevent the exemption from being used multiple times in a short space of time. However, they must be separate perks even if they are identical, e.g. you can't say that a perk costing £150 is comprised of three perks of £50 each.
A family tax-free benefit
If your client's spouse or partner is also a director, they are entitled to their own trivial benefits exemption which they can use in tandem. For example, while a single exemption might only cover the cost of, say, a single theatre ticket, if they spouse is also a director, the exemption could cover the other ticket, giving them both a night out on the company without triggering tax or NI.
Check the rules
Before your client rushes off to spend their company's money, make sure you don't fall foul of a common error. The trivial benefits exemption doesn't apply to cash payments or the equivalent.
Trap 1 - If the company pays a personal bill, say for home broadband, that's not a perk, it's equivalent to cash and must be taxed as if it were salary. However, if the contract for the broadband (or other goods or services) is between the company and the provider, that is a perk and the exemption can apply.
Trap 2 - While the trivial exemption can be used for a single bill, if the company has contracted for a continuous service, such as a broadband contract, the whole contract is a single benefit. This means the whole contract is the perk not each monthly instalment.
Tip - If your client can't find anything suitable to spend their company's money on, it could instead buy retail vouchers of £50 each to take maximum advantage of the exemption. The benefit is treated as arising when the company provides the vouchers, note when the director or employee redeems them. If six vouchers are bought from the same place at the same time, HMRC might argue that this is a single benefit. They should be bought at separate times and from online retailers which offer a wide range of goods to buy, such as Amazon or Tesco.