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The Low Incomes Tax Reform Group has backed new legislation to stop workers from facing tax charges on low-value benefits they receive from their employers.

Introduction

LITRG believes the current rules governing what constitutes a tax-free trivial benefit are too subjective and can leave employees shocked and confused as to why they end up having to foot a tax bill for receiving a minor item. The group supports the introduction of new, clearer, statutory rules on trivial benefits because it will reduce the costs and administration burdens for employers and HMRC – and also mean employees do not face an unexpected tax charge on items below £50, which meet other new conditions for the exemption.

Examples

The changes should mean that receiving gifts such as a bottle of wine given to celebrate the birth of an employee’s child, or book tokens or a bunch of flowers from a manager, will not cause the recipient a tax headache in the future.

Recommendation to keep statutory limit under review

However, LITRG has recommended that the new £50 statutory limit on each individual benefit that can be received without tax be kept under constant review, something the Government is yet to commit to.

Concern

The tax campaigners are concerned about an oversight which is the effect of the exemption in relation to workers on tax credits, Universal Credit and means-tested benefits. Such people may not know whether they have to report a trivial benefit as income and there is a risk that such a minor benefit may impact on the amount of money they get in welfare payments.

LITRG comments

• LITRG expects the change should mean that employees do not face the shock and confusion of a tax charge on items that neither they nor their employers in practical terms view as a taxable benefit. This should help companies with their administration of their businesses and frankly allow workers to enjoy what has been given to them without worrying about the cost.

• The new statutory exemption will help to clarify what is a trivial benefit in kind and LITRG welcomes a movement towards a more ‘principles-based system’ rather than the current subjective one. It is vital that the £50 limit is kept up-to-date, otherwise the exemption will become obsolete very quickly and not provide the long-term simplification of administration which this is designed to achieve.

• Legislation for tax credits, Universal Credit and means-tested benefits should be amended, if necessary, to ensure that exempt trivial benefits are ignored for these purposes. This is important, as the employee in receipt of the trivial benefit will have no record of its value.

A trivial benefit will qualify for the exemption if it meets four conditions: it costs less than £50, it is not cash or a cash voucher, it is not part of a salary sacrifice arrangement and it is not provided in recognition of the employment. The changes will come into effect on 6 April 2016.