Tax exemption for trivial benefits in kind: draft guidance
Draft guidance on a new exemption for low value benefits in kind ('trivial BiKs') to be included in the Employment Income Manual (EIM).
On 9 December 2015 the government published Draft legislation: Income Tax exemption for trivial benefits in kind to be included in Finance Bill 2016 (FB16), together with explanatory notes. These included legislation to give effect to a tax exemption for low value trivial BiKs. Draft regulations were also published to:
- extend the exemption to trivial BiKs provided to former employees
- give effect to a matching disregard for National Insurance contributions (NICs)
A Technical Note setting out how the exemption would work in practice was also published.
It is proposed that the new exemption is included in FB16 to apply for the 2016 to 2017 tax year and subsequent tax years. Once FB16 has received Royal Assent, the Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007 (the ‘EFRBS Regulations’) will be amended to extend the exemption to trivial BiKs provided to former employees. This will be backdated to the start of the tax year.
Disregard from NICs
Subject to the Parliamentary process, Regulations will be introduced in 2016 to 2017 to disregard from earnings the BiKs that attract a Class 1 NICs liability if they meet the new trivial BiKs exemption. These Regulations will be introduced after FB16 has received Royal Assent and 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 treated as earnings for tax purposes.
The following pages set out draft guidance on the new tax exemption. This provisional guidance explains HM Revenue and Customs (HMRCs) interpretation of the proposed legislation as published on 9 December 2015. It is published here to help employers and their advisers understand the application of the new legislation and will be reflected in HMRCs EIM once the legislation comes into force. Comment is invited on this draft guidance and the final text will take account of comments received and any changes to the draft legislation.
Any comments should be sent by email to employmentincome.policy@HMRC.gsi.gov.uk by Friday 25 March 2016.