The consultation is open for a six-week period and the new rules are set to come into force from April 2016 covering the 2016/17 tax year and subsequent tax years, although the full legislation will only be included in Finance Bill 2016 later this summer.

The measure was confirmed following last November’s Autumn Statement, and had been resurrected after the coalition government dropped the plans in the run-up to the May 2015 election.

The new rules will give effect to a tax exemption for low value trivial BiKs, including:

extending the exemption to trivial BiKs provided to former employees; and

giving effect to a matching disregard for national insurance contributions (NICs).

Under this exemption, if an employer provides a benefit to its employees, the benefit is exempt from tax as employment income if all the following conditions are satisfied:

• the cost of providing the benefit does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impracticable to work out the exact cost per person) (see EIM21865);
• the benefit is not cash or a cash voucher (see EIM21866);
• the employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements) (see EIM21867); and
• the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties (or in anticipation of such services) (see EIM21868).

Close companies qualify for £300 limit

Where the employer is a close company and the benefit is provided to an individual who is a director or other office holder of the company (or a member of their family or household) the exemption is capped at a total cost of £300 in the tax year

Once Finance Bill 2016 has received Royal Assent, the Employer-Financed Retirement Benefits (Excluded Benefits for Tax Purposes) Regulations 2007 (the ‘EFRBS Regulations’) will be amended to extend the exemption to trivial BiKs provided to former employees. This will be backdated to the start of the tax year.

Subject to the parliamentary process, Regulations will be introduced in 2016 to 2017 to disregard from earnings the BiKs that attract a Class 1 NICs liability if they meet the new trivial BiKs exemption. These Regulations will be introduced after FB16 has received Royal Assent and will only apply to qualifying trivial BiKs provided after the NICs Regulations are given effect. This means there will be a short period of misalignment when Class 1 NICs will be due and payable in respect of any trivial BiKs that are treated as earnings for tax purposes.

HMRC is seeking comment on this draft guidance and the final text will take account of comments received and any changes to the draft legislation.

Once finalised, the relevant Employment Income Manual will be updated.

Any comments should be sent by email [email protected] by 25 March 2016.

The draft guidance, Tax exemption for trivial benefits in kind guidance, is available from HMRC.