Tax on benefits in kind have been relaxed following a Government announcement.
Employees’ benefits worth £50 or less, paid for by an employer, will be deemed trivial and exempt from tax and National Insurance.
The change will apply from 6 April 2016.
At present, there is no hard and fast rule. HMRC can decide at its own discretion which benefits in kind should be taxed and which are trivial.
This could affect employers paying for a leaving do, a taxi home for a sick member of staff, or stationery for someone who works from home.
Directors and certain senior employees of so-called ‘close companies’ will also benefit from the new rules.
These are typically small, family-owned firms controlled by five people or fewer. They, and members of their families or households, will be able to receive benefits in kind of up to £300 a year before tax is payable.
When the new rules apply, the Treasury estimates it will lose £5m of tax in 2016-17 and £10m annually after then. However the Government pointed out the change will cut administrative costs for itself and for employers.
HMRC said “Employers are currently required to agree with HMRC whether certain benefits in kind can be treated as trivial. This is a burdensome process for both employers and for HMRC. It is also disproportionate to the amounts of tax and National Insurance contributions due.”
The changes to the taxation of low value benefits in kind was first proposed in the 2014 Budget. It was part of a wider range of measures to simplify the UK’s tax system which was suggested by the Office of Tax Simplification (OTS).
For more information on the new rules in the Policy paper Income Tax: statutory exemption for trivial benefits in kind click here.