Explanation of benefits

Explanation of benefits

At long last draft details of HMRC’s intention to simplify the taxation of benefits in kind (BiKs) and expenses has been released. This includes the introduction of a tax exemption for low value benefits in kind (‘trivial BiKs’).

Draft legislation to give effect to the exemption is included in Finance Bill 2016 which has been published for technical consultation from 9 December 2015 to 3 February 2016.

The exemption will commence from 6 April 2016.

The tax exemption will only apply to trivial BiKs, such as Christmas or birthday gifts, where the BiK:

  1. is not cash or a cash-voucher;
  2. costs £50 or less;
  3. is not provided as part of a salary sacrifice or other contractual arrangement; and
  4. is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

There will be an annual cap of £300 per annum for all Directors and office holders of close companies.The £300 annual cap will also apply to employees of the company who are part of the director’s or other office-holder’s family or household. Supplementary documents, including a Technical Note containing examples of how the cap will work, were published alongside Finance Bill 2016.

A matching exemption from National Insurance contributions (NICs) will also be introduced for trivial BiKs that attract a Class 1 NICs liability, such as some non-cash vouchers.

HMRC are looking for employers to take part in meetings to be held in January to discuss the draft legislation. If you are interested please e-mail employmentincome.policy@hmrc.gsi.gov.uk stating your name, contact details and availability.

Until the new exemption is introduced employers should continue to apply the guidance in Booklet 480, and in the Employment Income Manual at EIM21860. All agreements that are currently in place will still apply provided there has been no change in the circumstances.

Further details on the trivial BiKs exemption will be provided by HMRC in spring 2016.

For any queries on expenses and benefits please contact us on 01621 829632.