Don’t forget the (Christmas) trivial benefits in kind exemption

The issue

There is a general benefit in kind exemption for ‘trivial benefits’ if the following conditions apply:

1. The cost of providing the gift does not exceed £50 (or the average cost per employee if a benefit is provided to a group of employees and it is impractical to work out the exact cost per person).
2. The benefit is not cash or a cash voucher (although gift vouchers for particular shops are OK).
3. The employee is not entitled to the benefit as part of any contractual obligation (including under salary sacrifice arrangements).
4. 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).

Not in recognition of employment duties

This condition can catch people out because it can be difficult in an employment context to determine what is given in recognition of employment services and what is genuinely a gift. HMRC provide the following example:

HMRC example

Employer F runs a call centre and gives £25 gift vouchers to employees who hit specific performance targets each week. The gift vouchers are provided in recognition of the services provided and so the exemption cannot apply.

Conversely gifts at Christmas and Easter or for birthdays should be within the rules. Careful thought should be given for the reason behind the gift and statements such as ‘Well done for the excellent results!’ should be avoided.

Directors

Interestingly the gift exemption can apply to directors of small companies, although here the exemption is limited to £300 a year. I have considered whether a director who gets the company to buy six bottles of £50 wine (say) would be seen as taking a distribution, but presumably as the £300 limit is in the benefit in kind rules HMRC would not take the point here.

Forbes Dawson view

If handled with care this is a useful mechanism to provide tax-free benefits to employees. As well as being tax efficient, it avoids the need to get involved in making ‘fiddly’ PAYE settlement agreements to cover such gifts. The £50 limit should be taken seriously because a gift costing £50.01 would be fully taxable.

 

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