ACCA Advanced Taxation (ATX) Practice Exam

How is a trivial benefit classified for tax exemption purposes?

1. Any gift under £100 is exempt

2. A gift of up to £50 is exempt

3. Only cash gifts are exempt

4. Gifts of any amount made on special occasions are exempt

The correct answer is: A gift of up to £50 is exempt

A trivial benefit for tax exemption purposes is defined under the tax legislation that specifies certain conditions to qualify for exemption from tax. The correct classification allows for a gift or benefit worth up to £50 to be exempt from income tax and National Insurance contributions. This limit of £50 is a key aspect because it sets a clear threshold for what constitutes a trivial benefit. If an employer provides a benefit that does not surpass this value, it can be classified as a trivial benefit, making it exempt. The conditions also state that these benefits should not form part of a contractual obligation and should not be provided in lieu of salary or wages, reinforcing the intention of encouraging small, one-off gestures of goodwill without creating a tax burden for either the employer or the employee. In contrast, the other options provide incorrect limits or conditions: - A limit of £100 exceeds the established threshold for trivial benefits, making it ineligible for exemption. - Only cash gifts being exempt contradicts the provisions that allow for non-cash gifts—like vouchers and small physical items—to also qualify. - Gifts made on special occasions without regard for the amount do not align with the specifics of trivial benefits, which strictly adhere to the £50 limit to maintain the exemption status. Hence, the