Benefits in kind – how to avoid losing the exemption

Directors and employees can receive low value perks tax and NI free. The trouble is if the cost of a benefit exceeds the exempt amount it’s fully taxable and liable to NI. How can you avoid this trap but maximise the exemption?

Trivial benefits

The tax and NI exemption for trivial jobrelated benefits in kind (perks) was introduced in April 2016. While there are good reasons why you might not want to use it for your staff (providing perks costs you money regardless of their tax status), as a company director not making use of the exemption is a waste of a perfectly good tax and NI break. The maximum savings are modest for directors and their companies, but if you avoid the obvious traps they are easy to take advantage of.

Know your limits

Directors of close companies (one which is controlled by five or fewer individuals) can receive up to £300 worth of exempt trivial benefits per year. No single perk is allowed to cost your company more than £50. So, for example, 15 perks each costing £20 or six perks costing £50 are both fine. The trick is to ensure that neither of these limits is breached while obtaining the maximum tax and NI savings.

Example. You order in-ear headphones for yourself using your company’s Amazon account and credit card. They cost £48, but you overlooked the delivery charge of £5. The total cost to your company of providing the benefit is therefore £53 and so is not covered by theexemptionTip.  HMRC ignores insignificant indirect costs of providing a benefit when working out if the limits have been exceeded. For example, the cost of a phone call to order goods or services.

Other conditions

In addition to the financial limits there are further conditions. The exemption doesn’t apply to:

  • cash payments or vouchers that can be wholly or partly exchanged for cash, for example a premium bond

Trap. If a voucher can be redeemed partly for goods or services and any balance of its value is paid to you in cash, the exemption won’t apply.

  • benefits which are provided according to the terms of your employment contract, including salary sacrifice arrangements; and
  • benefits provided as payment or reward for a specific service you perform which is part of your job.

Maximise the exemption

To obtain the greatest tax and NI saving from the exemption you need individual benefits which cost your company exactly £50 and which add up to no more than £300 in a tax year.

Tip. A simple and guaranteed way to maximise the exemption is for your company tobuy gift vouchers up to the value of £50, or to top up a gift card with £50 or less, to a total value of £300 per year, and give them to yourself as and when you want them. Thevouchers can be from the same vendor, e.g. Argos, Amazon, your local off licence, or they might be for, say, £50 toward the cost of a hotel stay at your favourite weekend destination. Trap. The vouchers shouldn’t be given to you all at once as HMRC would consider multiple gifts made at the same time to be a single benefit which would cause the £50 limit to be breached. However, there’s no problem with you saving thevouchers given by your company on various dates and redeeming them all at once.

Reproduced with the permission of Indicator – FL Memo Limited. For subscription information call 01233 653500;