Employee Benefit Changes
November 10, 2016
From the 6 April 2016, there have been a number of changes regarding benefits in kind. Firstly, dispensations have been abolished. Dispensations were agreements that employers made with HMRC that exempted from tax a number of expenses paid to or on behalf of an employee, such as travel, subsistence, home telephone and fees to professional bodies. They could cover three scenarios 1) to reimburse a business expense paid by an employee 2) to pay a business expense on behalf of an employee 3) in limited circumstances HMRC agreed dispensations on non-business expenses when they considered these to be trivial. In the first two scenarios, the expense would usually be allowable for tax purposes and would directly offset the amount paid by the employer, resulting in a tax neutral situation.
Without a dispensation in place the employer would have to complete a P11D for each employee who they had paid benefits for and the employees themselves would have to submit an expense claim to HMRC in order get the tax back on the expense.
Since 6 April 2016, dispensations have been abolished. HMRC will now trust employers and employees to assess their own affairs. Where an amount paid to or on behalf of an employee equates to an allowable expense in that employee’s hands, then there is no longer any reporting requirement.
But what about those instances where the expenses are not allowable for tax? Read on….
Trivial Benefits Exemption
There have also been changes to benefits that do not fall under the above abolition.
Items such as birthday presents for staff have no identifiable business purpose and therefore would previously have come under the benefits in kind rules. The employee would, therefore, have to pay tax on their own gift and the employer would have to pay national insurance and complete a P11D.
The only other way of dealing with this was to set up a Pay As You Earn Settlement Agreement (PSA) which means that the employer agreed to pay the tax and national insurance on the gift and also tax and national insurance on the tax paid on the employee’s behalf.
This all seems excessive and unfair for something that is not intended to be classified as remuneration. It, however, get caught by the same rules that prevent an employer simply paying its employees in something other than cash so they don’t have to pay tax and national insurance.
As of 6 April 2016, the rules have changed. HMRC have recognised that the above process is burdensome and very administratively heavy for small items, so have introduced an exemption for trivial benefits.
The exemption applies if all the following conditions are satisfied.
- The cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
- the benefit is not cash or a cash voucher
- the employee is not entitled to the benefit as part of any contractual obligation or salary sacrifice
- the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)
This will cover all one-off gifts to staff, such as flowers and presents, as long as you stay under the £50 limit. Should the payment to employees go over £50 or fall foul of one of the other rules then they will again have to be reported on a P11D or dealt with via payroll where that is an option.