Trivial benefits aren’t taxable. However, the conditions for the exemption are not as clear as they first seem. How can you ensure the trivial perks you give your employees qualify as tax and NI free?
Preparation is key
The old adage “it’s the preparation that takes the time” ought to have been taken on board by the presenter of an HMRC webinar. She made a major gaffe regarding the rules for trivial benefits, i.e. those which cost employers no more than £50 per head to provide. The webinar host apparently said the exemption wouldn’t apply where, over the course of a tax year, the value added up to more than £50.
Two trivial limits
It’s not clear whether the speaker was confusing the exemption for VAT gifts, where a £50 annual limit applies, or whether more likely she conflated the two financial limits which apply for trivial benefits, i.e. the £50 cost and the £300 per year cap which applies to benefits provided to directors.
Pay-roll
The faux pas occurred when referring to the other conditions for the exemption. The troublesome example related to bacon rolls given to employees on a regular basis, which it was claimed would not be exempt.
In fact, the exemption can apply to any benefit which is not part of a salary sacrifice arrangement, if it meets the financial limits (£50/£300) and is not any of the following:
- cash or a voucher that can be converted to cash
- part of the employee’s contractual earnings; or
- recognition for “particular services performed by the employee as part of their employment duties”.
Reward for particular services
As one tax expert commenting on the matter pointed out, if an employer offered a bacon roll (or veggie burger) to everyone who agreed to come into work early or stay late for a particular task which fell within the scope of their normal job, the final condition above would be broken and the exemption would not apply.
Tip. The condition would not be broken, and the exemption would apply, if on a hot summer’s Friday afternoon, you treated some or all of your staff to a cold drink in the local bar, even if this happened frequently. The final condition for the exemption is not broken because the drinks are offered not as recognition of work but for a non job-related reason, namely because it’s a hot day. But if such largesse were repeated for a long time one of the other conditions might cause a problem.
Trap. While unlikely, it is possible that small benefits provided frequently might become customary over time and therefore could be seen as a reward for employment. If so they would fail the “contractual earnings” condition and at that point become taxable.
HMRC webinars. HMRC webinars are usually accurate (if perhaps a little biased). They are definitely worth listening to if they cover a topic you’re especially interested in.
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.