Trivial Benefits - non cash vouchers and Class 1 NICs

18 April 2016

From 6 April 2016 a new exemption removes liability to income tax for low value Benefits in Kind (‘trivial BiKs’). An article in the latest Employer Bulletin prompted us to ask HMRC how aggressively they might pursue lost class 1 NICs provided during the ‘lapse’ period.

An article on Trivial Benefits in Kind was recently published in the latest Employer Bulletin:

Trivial Benefits in Kind

From 6 April 2016 a new exemption removes liability to income tax for low value Benefits in Kind (‘trivial BiKs’). This new exemption is being legislated as part of Finance Bill 2016 (FB16) and is subject to Parliamentary approval. The previous administrative practice where employers could agree with HMRC that certain BiKs could be treated as trivial and did not need to be returned to HMRC at the end of the tax year no longer applies.

Draft guidance on the new exemption has been published on GOV.UK. This guidance will be incorporated in HMRC’s Employment Income Manual later in the year after FB16 receives Royal Assent.

General conditions

To qualify as a ‘trivial BiK’ conditions A-D must be met:

  • Condition A – the BiK must not be cash or a cash-voucher;
  • Condition B – the BiK must cost £50 or less;
  • Condition C – the BiK must not be provided as part of a salary sacrifice or other contractual arrangement; and
  • Condition D – the BiK must not be provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

There is no limit to the number of trivial BiKs that can be provided to an employee in a tax year where all conditions are met, unless Condition E applies (see below).

Close companies

Condition E applies an annual £300 cap where a trivial BiK (that meets conditions A to D) is provided by an employer that is a close company to an employee who is a:

  • director or other office-holder of the close company, or
  • member of the family or household of a director or other office-holder of the close company.

Former employees

Subject to the parliamentary process, after FB16 receives Royal Assent changes will be made to the ‘Employer-Financed’ Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007’ (‘the EFRBS Regulations’). This will ensure qualifying trivial BiKs provided to former employees also benefit from the exemption and are subject to the close company cap. Once the EFRBS Regulations are amended, their application will be backdated to the start of the tax year.

Disregard from National Insurance contributions (NICs)

Regulations will also be introduced after FB16 receives Royal Assent to disregard from earnings any exempt trivial BiKs that attract a Class 1 NICs liability. The NICs Regulations containing the Class 1 disregard will only apply to qualifying trivial BIKs provided after the NICs Regulations are given effect. This means there will be a short period of misalignment when Class 1 NICs will be due and payable in respect of any trivial BiKs that are, at the time of provision, still treated as earnings for tax purposes.

The Policy Team asked HMRC how aggressively they might pursue lost class 1 NICs provided during the ‘lapse’ period and their response was:

“From 6 April 2016, until the disregard for the Class 1 National Insurance contributions (NICs) comes into effect, employers who provide qualifying trivial BiKs will need to pay any Class 1 NICs that are due. As the misalignment of the tax and NICs treatment only applies to non-cash vouchers, employers may wish to provide qualifying trivial BiKs in a different form during this period to avoid the need to pay Class 1 NICs.

Any failure to operate Class 1 NICs correctly will be dealt with on a case by case basis.” (As per current process).