Tax on benefits-in-kind to be relaxed, government proposes

Pay slip

The rules on taxing benefits-in-kind for employees are going to be relaxed next year, the government says.

Benefits worth £50 or less, paid for by an employer, will no longer trigger a tax and national insurance bill for staff.

This could affect employers paying for a leaving do, a taxi home for a sick member of staff, or stationery for someone who works from home.

The change will start from 6 April 2016 following the next Finance Act.

At the moment, HMRC can use its discretion to decide what sort of benefits-in-kind should be taxed, or which are deemed trivial - and thus exempt from current tax rules.

For instance, there is already in place a general exemption for Christmas parties paid for by employers.

But there is no hard-and-fast rule.

'Burdensome process'

Chas Roy-Chowdhury of the ACCA accountancy body said the change would be a big step towards simpler taxes.

"At present, employers and employees often get it wrong because HMRC [HM Revenue & Customs] does not have a consistent definition of trivial benefits," he said.

The amount of money at stake is low and the government estimates that it will forgo just £5m of tax in 2016-17 and £10m annually thereafter.

However, the government said the change would cut administrative costs for itself and employers.

"Employers are currently required to agree with HM Revenue and Customs whether certain benefits-in-kind an be treated as trivial," the government said.

"This is a burdensome process for both employers and HMRC, and is disproportionate to the amounts of tax and national insurance contributions due," it added.

Another group of people who will benefit from the new rules are directors and some senior employees of so-called "close companies".

Typically, these are small family-owned firms which are controlled by five people or fewer.

They, and members of their families or households, will be able to receive benefits-in-kind of up to £300 a year before any tax bill is triggered..

The changes to the taxation of low-value benefits-in-kind was first proposed in the 2014 Budget, as part of a wider range of measures to simplify the UK's tax system initially suggested by the Office of Tax Simplification (OTS).

But after a couple of public consultations, the plan was left out of the 2015 Finance Bill, because of pressure on Parliamentary time.

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