Much has been made of the many changes that are set to be introduced in next year’s Finance Bill, but there are one or two minor amendments that have not received the publicity that many accountants feel they merit. One of the less-heralded changes relates to the tax treatment of low- value benefits in kind. Why make these changes? Well, it has long been suspected that many individuals were abusing the benefit.
So what changes are proposed, and how might these changes affect your business? Well, the Government is determined to implement a statutory tax exemption from income tax and National Insurance Contributions (NIC) for low-value benefits in kind (BIK). It is proposing to set a limit at £50. One further change that is proposed is that any qualifying ‘trivial’ BIKs given to directors, or other office holders of close companies or to members of their families or households, will be subject to an annual cap of £300. If these proposals are accepted then the changes will come into force after 6th April, 2016, as part of legislation in the Finance Bill 2016.
What will the changes mean for employers? Well, as employers you will no longer need to report trivial benefits on either form P11D or via Pay as You Earn Settlement Agreements (PSAs) at the year end. Employers will also be able to disregard trivial BIKs that attract Class 1 national insurance contributions. Draft secondary legislation for the NICs changes was published for consultation last week.
The new legislation will enable amendments to be made by Statutory Instrument to the £50 upper limit per individual benefit, the £300 annual monetary cap for directors and other office holders of close companies and members of their families and households who are also employees of the company, and the conditions of the exemption.
The 2007 Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations will be changed to apply the exemption to former employees and the annual cap to trivial benefits in kind provided to former directors and office holders and members of their families and households.
Are any further changes likely to be implemented in the coming years? Well, that depends on how individuals and businesses respond to the changes. Speaking about the proposed changes, Meg Wilson, tax writer at CCH, said:
“There is no doubt that if HMRC spot what they consider to be abuse of the exemption we can expect further restrictions to be introduced. [However] it is to be hoped that HMRC will review the £50 cap regularly so that the exemption continues to be worthwhile.”