It’s not often that you can get something for nothing, especially from the taxman. However, there is one exemption to income tax that may be useful. It is not huge, but applies to everyone who is employed and can be worth a tax saving of at least £60 per year for someone paying basic rate tax, and that exemption is for “Trivial Benefits”.
Usually, if you receive a “Benefit-In-Kind” from your employer then he will need to report this at the end of the year on a form P11d and you will pay income tax on it, usually by having your tax code restricted in the following year. However, this does not apply to any benefits which cost less than £50 provided that it is not part of a salary sacrifice scheme and that it meets the following three conditions:
- It is not cash, or a voucher that can be converted to cash, or
- It is not in your contract of employment that you will receive it, or
- It is not in recognition for “particular services performed by the employee as part of their employment duties”
If you are a director then there is an additional condition in that the total of the benefits must not exceed £300 in any tax year. This would apply, for instance, if you were the director/shareholder of your own company. However, for non-directors there is no overall annual limit.
The £50 limit is for each instance of the benefit. An example that was given recently was that of a bacon roll given regularly to employees, the total cost of which exceeded the £50 limit during the tax year. Despite this, as each bacon roll was less than the limit the benefits would still be exempt under the trivial benefits exemption.
The third condition, however, may easily be breached. For instance, that bacon roll may be given to each employee who arrived early or who worked late. In this case, the benefit would be in recognition for a particular service and the exemption would not, therefore, apply. Compare this to the case where the weather is particularly hot because of which your employer treats you to a drink in the local pub. In this case the benefit is due to a non-work related reason and the benefit would apply, even if that hot spell continued for several months.
One final warning. If the benefit is provided regularly then it may become an expected reward, and this may be sufficient for it to become an implied condition in the contract of employment. If this applies then the second condition would be breached and the benefit would become taxable. However, with care this exemption may be quite valuable.
If you have any queries in respect of this article please do not hesitate to give WatkinsonBlack a ring