The new exemption
The exemption for job-related low value perks, trivial benefits to give them their official name, was originally meant to take effect in April 2015 but it proved too controversial and was postponed. However, it finally came in on 6 April 2016. A trivial perk is one where the cost to the employer is no more than £50. Employees are entitled to as many exempt perks as their employer is willing to give them. However, there’s a special limit for directors.
What’s the limit?
Directors are entitled to the tax and NI exemption for trivial perks up to the value of £300 per year. That could, for example, be 15 perks of £20 or six perks of £50. Toqualify no single perk can cost your company or have a taxable value (whichever is thegreater) of £50. Trap. The £300 limit applies to perks provided to a director’s family or anyone that works for them personally, e.g. a nanny.
Not all directors
The limit only applies to directors of close companies. Broadly speaking a close company is one which is controlled by five people or fewer. For example, if two shareholders own 20% of a company’s ordinary shares each and four other shareholders 15% each, any four of them together control more than 50% of thecompany’s voting rights and therefore it is a close company.
Apart from the financial limits there are further conditions. The exemption doesn’t applyto:
- cash payments or vouchers that can be exchanged for cash
- a perk that is provided under the terms of an employment contract. This includes salary sacrifice arrangements; and
- a perk that’s provided in recognition of particular services performed by theemployee which is part of their employment duties.
The last two conditions are more likely to apply to employees than directors.
A nice meal out
Because directors, particularly those of smaller companies, are able to give themselves ad hoc trivial perks, the exemption – although limited – is probably worthmore to them than their employees.
Example 1. A company agrees to purchase a birthday gift worth £40 for a director’s niece and posts it to her at a cost of £6. The exemption will apply.
Example 2. The five directors of a company and their spouses go out for a meal. Thebill comes to £450. Although the cost per director is £90 it actually represents twoperks of £45 each – one for each director and one for their spouse. Therefore, theexemption applies.
Tip. Where the precise cost per head of a perk can’t be worked out, or it’s impracticalto calculate accurately (can everyone remember how many millilitres of wine they drank?) the rules allow you to use an average value. For example, in the case of a meal or other group event HMRC won’t expect you to keep a record of the cost of each person’s share of the overall bill.
Reproduced with the permission of Indicator – FL Memo Limited. For subscription information call 01233 653500;