Particular benefits: exemption for trivial benefits – directors and other officers of close companies – members of their family or household (from 6 April 2016)
Section 323B(2) and (4) 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 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 a trivial benefit is provided to a member of the office holder’s family or household, then the cost of the trivial benefit counts towards the office holder’s annual exempt amount, unless the member of the family or household is taxed on the benefit in their own right as an employee or office holder of the same company.
Members of the office holder’s family or household who are employees of the same close company are each subject to their own annual cap of £300.
More than one member of the same family or household may be office holders or employees of the same company. Where this is the case and a trivial benefit is provided to a member of their family or household who is not an employee or office holder of the same company, apportion the cost of the benefit between the office holders and employees equally.
In apportioning the cost of a trivial benefit, you should also take into account any former employees who were office-holders at any time when the company was close or a member of their family or household. Allocate the cost of the trivial benefit on an equal basis between all the persons to whom the benefit should be allocated.
The following examples illustrate how the cap works (assuming that the company is a close company and that all benefits otherwise meet the trivial benefit qualifying conditions).
Company L provides a director and the director’s daughter with a turkey each at Christmas. Each turkey costs £30. The daughter is not an employee or office holder of company L. The total cost of £60 counts towards the director’s annual exempt amount.
Company M provides one of its directors with a bottle of wine on her birthday. It also provides a bottle of wine to the director’s husband who is an employee of company M. Each bottle of wine cost £20. £20 is allocated against each of their annual exempt amounts – this reflects the cost of the bottle of wine that each of them received.
Company N provides gift tokens costing £30 each to two of its directors, who are husband and wife, and to their son on their birthdays. The son is not an employee or office holder of company N and so the cost of his gift token is apportioned between the directors on an equal basis. £45 is allocated against each of their annual exempt amounts. This reflects the cost of the gift token they were provided with personally and half of the cost of the gift token provided to their son.
Company O gives bottles of wine each costing £30 to a director, to his wife who is a former director, and to their daughter on their birthdays. The daughter is not an employee or office holder of Company O, so the cost of her bottle of wine is apportioned between her father (a current director) and her mother (a former director). In respect of the daughter’s gift, £15 (£30/2) is allocated against the father’s annual exempt amount. The balance is allocated against the mother’s annual exempt amount under the employer-financed retirement benefits (EFRBS) regulations (The Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes)(Amendment ) Regulations 2016).
See EIM15033 for further guidance on the EFRBS regulations as they apply to the provision of trivial benefits.