Particular benefits: exemption for trivial benefits – directors and other officers of close companies (from 6 April 2016)
Sections 323A(1),(2) and (10) and 323B ITEPA 2003
Note: this guidance has effect for benefits provided from 6 April 2016 onwards. For guidance on HMRC’s approach to trivial benefits for tax years 2015 to 2016 and earlier, see EIM21860.
The guidance at EIM21864 sets out the qualifying conditions that determine whether or not a benefit provided to an employee is exempt from tax as a trivial benefit.
Where the employer is a close company (see CTM60060) and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household), the total value of benefits that can be treated as exempt trivial benefits is capped at a total cost of £300 in the tax year. This is known as the annual exempt amount. Where the company provides benefits that it considers are trivial, it will need to keep suitable records to demonstrate that this amount has not been exceeded.
This means that the total cost of separate trivial benefits provided by the company that are exempt from tax is limited to a maximum of £300 in any tax year. (The £300 limit is per individual and per employer). In determining whether a particular trivial benefit provided during the tax year is exempt, check whether the annual exempt amount has been exceeded by reference to the date on which the benefit was provided and the total cost of trivial benefits that have been provided before then.
When determining whether the cap has been exceeded for a particular tax year you should take into account the cost of benefits provided in that year, rather than the date the employer paid for the benefit. This should not normally be an issue because in most cases the benefit will be paid for in the same year as that it in which it was provided.
Where the cost of an additional trivial benefit results in a total cost that exceeds the annual exempt amount, none of the benefit that exceeds the cap is exempt (in other words, the total cost of the benefit in question – see Example K). However, the tax treatment of any earlier benefits where the total cost did not exceed the annual exempt amount is not affected.
Where more than one trivial benefit is provided on the same day and the order in which they are provided determines whether the annual exempt amount is exceeded, apply the order that is most favourable to the individual.
As defined in Section 721(4) and (5) ITEPA 2003, family or household covers the employee’s:
- spouse (or civil partner)
- children and their spouses (or civil partner)
- domestic staff, dependants and guests.
Broadly speaking a company is a close company if it is:
- under the control of five or fewer participators and their associates, or
- under the control of directors who are participators and their associates.
The following examples illustrate how to apply the annual exempt amount (assume that the company is a close company and all benefits otherwise meet the trivial benefit qualifying conditions).
Company L provides a director with 3 benefits that cost £30, £40 and £50 respectively in a single tax year. The total cost of the benefits is £120. The total cost does not exceed the annual exempt amount of £300 and all of the benefits can be covered by the exemption.
Company M provides a director with 7 benefits that each cost £50 each during the tax year. The total cost is £350 which exceeds the annual exempt amount. The last benefit is not exempt from tax.
Company N provides a director with 8 benefits in the tax year. The first 5 benefits during the tax year cost £50 each. In date order, the next cost £40, £45 and £10 respectively. The total cost of the first 6 benefits is £290 which is less than the annual exempt amount so they are all exempt. The £45 benefit brings the total cost to £335 which exceeds the annual exempt amount. Therefore, the £45 benefit is not exempt, but is not counted towards the annual exempt amount. The £10 benefit brings the total cost to £300 which does not exceed the annual exempt amount so it is also exempt.