Company owner managers are still largely confused about exemptions for trivial benefits. How can you use them to the greatest tax and NI advantage for you and your business?
Tax and NI exemption
The legislation describes the exemption introduced in 2016 as applying to “trivial benefits”. This description doesn’t really do it justice. While it can’t used as a tax and NI-free substitute for salary, bonuses or any other form of earnings for your employees - as it only applies to benefits which aren’t a reward for work - it’s more or less a free giveaway for director shareholders.
The original draft legislation allowed director shareholders to benefit without additional conditions. HMRC realised this would potentially allow company owners free reign to give themselves as many tax and NI-free benefits as they want on top of, or as a replacement to, their earnings. That’s why a last minute change to the legislation capped the exempt amount to £300 per year. This might not seem much but over ten years it can save you and you company £1,824 in tax and NI for each director. Why would you not take advantage of a tax break, even a modest one, if it’s handed to you on a plate?
Trivial benefits in practice
The £300 can apply to any benefits other than a cash payment or cash voucher as long each one doesn’t cost your company more than £50. It could, for example, provide 30 perks costing £10 (say, a reasonable bottle wine for 30 weekends) or six perks of £50 (a decent bottle of Scotch every couple of months).
Tip. One way to guarantee maximum use of the exemption is for your company to buy six gift vouchers costing £50 each, say for your favourite store (online or on the high street) and give them to you on six separate occasions . You can spend them at the time or if you want a bigger purchase save them to spend all at once.
Tip. Remember that the exemption is available to every director shareholder, so if your spouse or children are directors, they get their own £300 exemption.
If you haven’t used your trivial benefits exemption yet, with Christmas not too far off it’s the perfect time to do so. Here’s a couple of ideas:
Idea 1. Get your company to purchase Christmas gifts for friends and family. This counts as an exempt trivial benefit for you. If the company pays for delivery remember that this counts towards the £50 limit.
Idea 2. Go for a festive meal with your fellow directors and guests. Say there’s five of you and each brings a guest and the bill comes to £450. Although the cost per director is £90 it actually represents two perks of £45 each - one for each director and one for their guest.
Tip. If the exact cost per head can’t be worked out, or it’s impractical to calculate it accurately, you can use an average. For example, for a group event you aren’t required to identify the cost of each person’s share of the bill.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.