Saving tax with trivial benefits

March 13, 2020

 

Despite the tax and NI exemption for trivial benefits being more than three years old, business owners are sometimes mystified about when and how they can use it, especially for themselves. How can your clients get the most from it?

 

Tax and NI exemption:

The legislation describes the exemption introduced in 2016 as applying to "trivial benefits". This description doesn't really do it justice. While it can't be used as a tax and NI-free substitute for salary, bonuses or any other form of earnings for employees - as it only applies to benefits which aren't a reward for work - it's more or less a free giveaway for director shareholders.

 

Director shareholders:

The original draft legislation allowed director shareholders to benefit without additional conditions. HMRC realised this would potentially allow company owners free rein to give themselves as many tax and NI-free benefits as they want on top of, or as a replacement to, their earnings. That's why a last minute change to the legislation capped the exempt amount to £300 per year. This might not seem much but over ten years it can save your client and their company £1,824 in tax and NI for each director. Why would they not take advantage of a tax break, even a modest one, if it's handed to them on a plate?

 

Trivial benefits in practice:

The £300 can apply to any benefits other than a cash payment or cash voucher as long as each one doesn't cost your client's company more than £50. It could, for example, provide 30 perks costing £10, say, a reasonable bottle wine for 30 weekends, or six perks of £50, a decent bottle of Scotch every couple of months.

 

Tip 1. One way to guarantee maximum use of the exemption is for your client's company to buy six gift vouchers costing £50 each, say for their favourite store, with them given out on six separate occasions. They can spend them at the time, or if they want a bigger purchase, save them to spend all at once.

 

Tip 2. Remember that the exemption is available to every director shareholder, so if your client's spouse or children are directors, they get their own £300 exemption.

 

Still time to benefit

If your client hasn't used their trivial benefits exemption yet, with the end of the tax year nearing it's the perfect time to do so. Here's a couple of ideas:

 

Idea 1. Get the company to purchase gifts for friends and family. This counts as an exempt trivial benefit for your client. If the company pays for deliver remember that this counts towards the £50 limit.

 

Idea 2. Your client goes for a meal with their fellow directors, and guests. Say there are five directors and each brings a guest and the bill comes to £450. Although the cost per director is £90 it actually represents two perks of £45 each - one for each director and one for their guest. 

 

Tip. If the exact cost per head can't be worked out, or it's impractical to calculate it accurately, you can use an average. For example, for a group event you aren't required to identify the cost of each person's share of the bill.

 

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