Using the trivial benefits exemption

The trivial benefits in kind (BiK) regime came into effect in April 2016. This statutory exemption applies to small non-cash benefits like a bottle of wine or a bouquet of flowers given occasionally to employees or any other benefit in kind classed as ‘trivial’ that falls within the exemption.

Although the benefit is defined as ‘trivial’, employers should remember that this offers a great opportunity to give small rewards to employees. To qualify, gifts must not be given as a reward for services performed or as part of the employees’ duties. However, gifts to employees on milestone events such as the birth of a child or a marriage or other gestures of goodwill would usually qualify.

The employer also benefits as the trivial benefits do not have to be included in PAYE settlement agreements or disclosed on P11D forms. There is also a matching exemption from Class 1 National Insurance contributions.

The tax exemption applies to trivial BiKs where the BiK:

  • is not cash or a cash-voucher; and
  • costs £50 or less; and
  • is not provided as part of a salary sacrifice or other contractual arrangement; and
  • is not provided in recognition of services performed by the employee as part of their employment, or in anticipation of such services.

The rules also allow directors or other office-holders of small companies and their families to benefit, although an annual cap of £300 aplies. This would limit gifts to these individuals to six a year at £50 each. The £300 cap does not apply to other employees. If the £50 limit is exceeded for any gift, the full value of the benefit will be taxable.

Planning note:

This trivial benefits exemption helps simplify the treatment of BiKs whilst at the same time offering a tax efficient way to give small gifts to employees and even to treat directors and their families. Accordingly, it should be viewed as a worthy component of any strategy that examines tax efficient ways for directors to withdraw funds from a small company for their own benefit, and as a way to create goodwill towards their workforce.

If you would like to re-examine your profits extraction strategies we would be delighted to help. Although the use of trivial benefits is limited for directors, as part of a coordinated campaign it is a worthy tax planning addition.

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Case Studies

The Tax Man

Minimise the stress of an investigation and make use of our extensive experience in securing best outcome for our clients

Business Valuation in Distress

Take advantage of our impartial and rigorous due diligence procedures

FD in The Cupboard

Our innovative ideas are here to improve your business performance and secure appropriate and cost effective funding

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The Tax Man

The Tax Man

A new client was introduced to us via a recommendation with whom we arranged to meet on a regular basis in order to determine a number of changes that we felt were needed to their business structure. The client was at the time operating as a husband and wife partnership. The business was flourishing and had a number of large contracts with big organisations.

At the start of the process they were still heavily immersed in their day to day operations so we can get a full flavour for their ambitions, aspirations and growth plans. We quickly recognised there were sufficient tax savings which can be achieved by changing the structure from a partnership to a corporate entity. We carried out a business valuation and disposed of the goodwill from the old to the new business. Unfortunately, as often is the case with efficient tax planning, HMRC got involved and disputed our valuation.

An HMRC investigation can be a very stressful time for any client, even for those best prepared. However, our client had minimal input in the HMRC communication as we dealt with this professionally behind the scene. As an added benefit, our client could rest on the security that all work was covered by insurance and therefore all costs and time in dealing with this enquiry were covered by the fee protection policy we had put in place.

The initial approach taken by HMRC was very aggressive and they tried to present an argument that there was no goodwill in the business. We challenged HMRC’s view that the goodwill was worthless. After lengthy correspondence and numerous telephone calls, HMRC agreed 100% with our original valuation, which preserved our original tax saving plan for the client. Tax savings on this case where in the region of £75K at the outset, with ongoing savings of £6,000 per annum. We are pleased to add another happy client to our portfolio.

Business Valuation in Distress

Business Valuation in Distress

Selling a business is never an easy process, but when disputes arise, the need for a reliable third party due diligence process is even greater.

Tearle & Carver have extensive understanding of the requirements for remaining objective when managing a potentially difficult company buyout. In one such case, we were approached by the courts to act as independent accountant for an acrimonious business sale in which one partner was exiting the business and selling shares to the other. Given the circumstances, both sides had totally polar views of what their business was worth.

After arranging an initial meeting with the company, we were thorough in ensuring we completed due diligence, validating the figures in the accounting records, carrying out adjustments where appropriate, and drafting a set of reliable management figures within the framework required by the court.

A draft version of the report detailing our findings and conclusions was submitted to both parties, giving them the opportunity to voice any queries or concerns and ensure all relevant factors had been taken into account.

Through this process, we were able to submit a final report to the courts that was both binding and acceptable to both parties, effectively resolving what could otherwise have been a time consuming and costly process for all sides.

FD in The Cupboard

FD in The Cupboard

For smaller companies, it is often not possible or cost effective to pay for a full-time Financial Director.
Many of our clients therefore make use of Tearle & Carver’s extensive expertise to provide the services of an FD as and when required.

In this case, we were approached by the management team of an organisation looking to acquire the existing business via an MBO (Management buy out). Their business plan had proved ineffective for securing funding, and what they needed was financial expertise from someone with a developed understanding of the company’s internal workings.

Tearle & Carver helped deliver the solution our clients were looking through utilising our bank contacts in order to make the MBO viable, while also building a robust business plan and preparing our client for the rigorous vetting process. To help with cash flow issues, we introduced factoring which led to improved cash flow management.

We advised on the appropriate business valuation and structure, and continued to prepare monthly accounts to track profgress once the management were fully in command of all the information they needed to move their business forward.

In order to best assist these clients through the crucial first year of ownership, we attended board meetings on a regular basis, a service that we continue to provide to date.

With our continually developing understanding of their business, this client is able to remain confident that Tearle & Carver can provide any financial support they may need, now and in the future.