Q. A friend has told you that he and his wife are taking a tax-free luxury weekend away on the company. Apparently, because the business has been running a long time HMRC allows this. Is this something you can take advantage of?
A. Tax rules include a surprisingly long list of benefits in kind which an employer can provide its workers tax and NI free. The motive for these can usually be traced back to government policy, typically where environmental, health or national economic interests are involved, e.g. low emission company cars and mobile phones. However, there are a few perks that seem to amount to simple generosity.
You’ll probably already know about the trivial benefits exemption which can be used by employers to provide tax and NI-free perks to employees, including directors, as long as they cost the business no more than £50. Interestingly, at the end of 2019 HMRC issued revised guidance which seems to suggest it now takes a less generous approach to the exemption than when it was first introduced.
The trivial benefits exemption can be used any number of times for perks to employee’s but the total cost must not exceed £300 per year for each director. This means the exemption could not apply to a luxury weekend away.
But there is an exemption that could.
The tax and NI rules include a more significant exemption for perks for employees who have worked for the same employer for a long time. Naturally, there are conditions but these are straightforward and there’s less room for HMRC to be stingy as it has been with trivial benefits. The main conditions for the exemption are that the benefit:
• Must be for an employee with 20 or more years of service with the same employer (working for different companies within the same group counts as the same employment).
• Is not cash or vouchers that can easily be converted into cash, e.g. premium bonds.
• Does not cost the employer more than £50 for each year of service.
• Can only apply if there’s at least 10 years between each gift, where more than one long-service gift is made to the same employee or director.
Because, for tax purposes, directors count as employees, the exemption can be used even if you are the only person who works for your company. What’s more, if like many small companies your spouse or partner (married or unmarried) is on the books, perhaps as company secretary or non-executive director, they too can benefit from an exempt perk.