On 6 April 2015 the change to the trivial benefit rules comes into effect. This will exempt from tax (and Class 1 or Class 1A NI) any benefit in kind given to an employee that has a cash equivalent value of £50 or less including VAT. Such items would typically include small gifts at Christmas and birthdays or flowers given for welfare or celebratory reasons.
The good news is that these gifts can include gift vouchers and each gift is assessed against the £50 limit, it is not an annual exemption of £50 in total.
The downside is that gifts cannot be given to reward an employee for their performance – so ‘thank you’ gifts or vouchers would still have to be included on a PSA if the employer does not want to pass on the tax charge to the employee.
Abolition of £8500 threshold
From 6 April 2016 any employees (save for ministers of religion and carers who have tax free accommodation but low earnings) who receive benefits in kind will be taxable on them regardless of their level of earnings.
Payrolling of benefits in kind
Also from 6 April 2016 employers are being encouraged to opt to tax certain benefits through the payroll. Payrolling adds the cash equivalent value to taxable pay as a notional amount so the tax is collected but no NI is levied, the amount being accumulated for Class 1A that is reported and paid over on the P11Db after year end as now. Employers who want to move to payroll either cars, car fuel, medical insurance and treatment or subscriptions will need to register with HMRC from April 2015 (a new tool will be available) so tax codes can be amended to remove benefits from April 2016.
This has the potential to remove the need to prepare forms P11D. Putting control into the hands of the employer or agent is a welcome change given the problems in HMRC processing forms P11D correctly.
End of dispensation
All dispensations currently in force will cease on 5 April 2016. From that date employers will be required to make their own judgement as to which items need not be reported to HMRC and be able to defend this if questioned.
HMRC are promising guidance before the abolition so that employers can carry out a full audit of their expenses policies and processes but if you have any queries or concerns please do contact Sue Stephens or Donna Newall in our tax department.