The new HMRC rules permit small companies to claim expenses towards costs incurred for offering trivial benefits to employees and directors. There is an upper cap on the amount that can be spent for each individual employee and for each individual director, in addition to the restrictions on where the expenses can be claimed. The new rules offer employers an opportunity to celebrate functions or gatherings without having to be taxed for it. The Rules Governing “Trivial Benefits” Changed from 6 April 2016. Before you go around spending your money on trivial benefits, it would be to learn more about the rules and the conditions.
Upper cap on small expenses for employees and directors
The upper cap on small expenses for directors of close companies are £300 per annum. For employees the limit is £50 per annum. The benefit cannot be in cash or a cash voucher.
Instances where these expenses cannot be covered
In addition to the limits that apply for small expenses, there are two specific instances or conditions where the expenses cannot be claimed. One, the expenses cannot be used as a method to reward employees for their performance or as part of any contractual obligations. Two, the expenses cannot be claimed when cash vouchers are disbursed to employees. These two conditions will apply regardless of the limits mentioned above.
Typical examples where expenses can be claimed. Some of the typical examples where expenses can be claimed include the following.
A company that gifts each of its employees with expensive chocolates or cakes during a festive occasion can claim the expenses provided that the amount spent on each employee does not cross the £50 limit.
A company that take its employees out for a celebration can claim this trivial expenses. It is interesting to note that if 10 employees are taken out for a meal, and the combined bill comes to £500, the expenses can be claimed. The rule that applies here is the total bill divided by the number of employees. Therefore regardless of what each employee has ordered, it is the total bill and the number of employees that count.
Typical examples where expenses cannot be claimed
A company that gifts its directors with complimentary treats that are below the annual cap of £300 but above the individual cap of £50. For instance, if a company gifts three of its directors with expensive bottles of wine that cost £250, the expenses cannot be claimed. This is because the expenses are above the individual cap despite being below the annual cap.
The company that distributes cash vouchers to its employees cannot claim trivial expenses. For instance, if a company distributes casual shoes to all of its employees with the value of £40 per voucher, the expenses cannot be claimed.
Financial aspects of trivial expenses in a nutshell
The financial aspects of trivial expenses are the fact that employers need not have to show the expenses on the statutory form of submission – P11D. Additionally employers will not be exposed to any tax or national insurance on the trivial expenses incurred. Similarly employees will also not be exposed to any kind of taxation as a result of receiving these benefits from trivial expenses. And the best part of this new rule is that employers are entitled to claim income tax relief and corporation tax relief on the costs incurred towards such trivial expenses.
The rules that existed prior to this new set of rules
Prior to the announcement of these rules, companies had to remit taxes for entertaining staff. This used to typically be a part of the P11D form or the PSA (PAYE settlement agreement). It used to be reportable on every employees P11D form. Employees generally resorted to using the annual function route to avail exemptions for Christmas parties, which had a cap of £150 per individual. With the new rules coming into force, employers will find it a lot easier to spend on parties for employees.
All accounting practices need to be on the advice of professionals. Enlisting the services of qualified certified and experienced accountants will certainly help in managing accounts. With the right accountant it is possible to not only remain compliant, but to also fully make use of options and provisions as per law. The right accountant can help companies to cut down on tax exposure legally.