Draft legislation on the income tax exemption for trivial benefits in kind is to be included in the UK Finance Bill 2016. Draft regulations have also been published to extend this exemption to benefits in kind provided to former employees and to give effect to a matching disregard for national insurance contributions (NICs) relating to the benefits in kind. On 11 February 2016 HMRC published for comment draft guidance on the new exemption. This draft guidance when finalized will be included in HMRC’s Employment Income Manual.

The income tax exemption for trivial benefits in kind will apply for the year 2016/17 onward. It will apply to a benefit provided by an employer to employees where certain conditions are met. The conditions are that the cost of providing the benefit does not exceed GBP 50; the benefit is not cash or a cash voucher; the employee is not entitled to the benefit as part of any contractual obligation or any salary sacrifice arrangements; and it is not provided in recognition of (or in anticipation of) particular services performed by the employee as part of the duties of the employment. The exemption applies to benefits provided to the employee or to a member of the employee’s family or household. If any of the required conditions is not satisfied the benefit is taxed in the usual way.

The benefits will also be excluded from the earnings attracting Class 1 national insurance contributions if they meet the new exemption. This will apply to qualifying trivial benefits in kind provided after the date when the new NIC regulations are given effect.

If 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 to a member of their family or household the exemption is capped at a maximum total cost of GBP 300 in each tax year.