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HMRC internal manual

National Insurance Manual

Class 1 NICs: earnings of employees and office holders: trivial benefits

A statutory exemption for trivial benefits in kind (section 323A ITEPA2003) was introduced for income tax purposes from 6 April 2016 (see EIM21864 to EIM21871). Under this exemption, if an employer provides a benefit to its employees, the benefit is exempt from tax as employment income if all of the following conditions are satisfied.

  • the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person)
  • the benefit is not cash or a cash voucher
  • the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements)
  • the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services)

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 exemption is capped at a total cost of £300 in the tax year.

The exemption applies equally to benefits provided to the employee or to a member of the employee’s family or household.

The exemption also applies where the trivial benefit is provided on behalf of the employer by a third party. For example, where the benefit is provided through a management services company within a group of companies or by a third party business where management services have been outsourced, provided the cost of the benefit is ultimately borne by the employer.

A matching Class 1 NICs disregard was introduced (in paragraph 6(da) of Part V to schedule 3 of the Social Security (Contributions) Regulations 2001) from 28 November 2016 to mirror the tax treatment. When a trivial benefit that would ordinarily be liable for Class 1 NICs, such as certain non-cash vouchers, is provided to an employee, and this is exempt from tax under section 323A ITEPA 2003, then it will also be disregarded from the calculation of earnings for Class 1 NICs purposes.

It should be noted that this only applies to such benefits that are provided after the Class 1 NICs disregard was introduced. Any such benefits provided before that date will, where appropriate, still attract a Class 1 NICs liability as usual.

(If a benefit that would usually attract a Class 1A liability is provided then no liability would arise in any case if that benefit is exempt from tax under section 323A ITEPA 2003).