CM July and August 2023 digital

‘‘It is likely that very frequent gifts to employees
could be subject to challenge by HMRC, who
may argue they were a reward for work done by
the employee.”
the voucher now exceeds £50. Now, if the
employer had bought the £15 voucher in
September with a different retailer, that
would have qualified for the exemption as
it would have been treated as a separate
benefit.”
In many cases a benefit may be
provided to a number of employees and it
won’t be practical to work out the cost per
employee. In this instance Wright says
that the £50 cap applies to the average
cost per employee instead. He gives an
example: “An employer pays to take their
10 employees out for a meal at a total cost
of £450. Everyone chooses different food
and drinks. It is not practical to work out
the cost for each employee so an average
cost per head of £45 would be accepted
and should be exempt as it is less than
£50.”
Non-cash vouchers count
Wright says that it’s important to
recognise that only non-cash vouchers
qualify for the exemption. He says that
any vouchers can be used – for online or
high street shops – “but only if they can’t
be exchanged for cash.”
In another example, he illustrates
what he means: “A £50 voucher that can
be used to buy £30 of goods and which
allows the holder to take the £20 change
in cash would not qualify. By contrast,
if that £20 surplus was only available as
another voucher or store credit, then the
original £50 voucher should qualify as a
trivial benefit.”
Frequency
Next comes the matter of frequency
and Wright says that “providing a gift to
employees annually should not make it a
contractual entitlement. So, a Christmas
hamper which costs the employer £50 or
less can be provided to employees every
year and still qualify as a trivial benefit.”
However, in drawing a comparison
to regular income, Wright says that
providing gifts on a very frequent basis
may prove problematic. So, while the
giving of a different £50 gift voucher
every month is not specifically excluded
from the trivial benefits exemption, he
says that the exemption is intended to
cover occasional gifts and gestures of
goodwill. Where this happens, he thinks
that “it is likely that very frequent gifts to
employees could be subject to challenge
by HMRC, who may argue they were a
reward for work done by the employee, or
that the frequency created an expectation
by the employee such that they could
demand the employer kept providing the
benefit.”
And if this were the case, Wright
states that the provision of vouchers
would then be treated as ordinary pay,
meaning tax and NICs would be payable.
He emphasises that “in guidance from
2019, HMRC suggested that it would
look unfavourably on the provision of a
weekly cream cake! It’s wise therefore to
avoid a regular pattern of gifting.”
Reward for services
The whole point of the trivial benefits
exemption is that it’s meant for random
well-meaning gifts. In other words, as
Wright tells, “it’s not something that
provides gifts or perks as a reward for
services or incentivises employees to
work harder.”
His point is best made through another
example. Suppose Employer A takes sales
representatives who have reached their
target out to lunch at a cost of £45 per
head. As the meal is a reward for services
performed, it will not qualify as a trivial
benefit. In contrast, Employer B takes the
sales team out to lunch to celebrate the
end of a busy year. This should qualify
for the exemption as it is not rewarding
specific performance.
Employees, gifts for colleagues and
employer repayment
Another quirk of the rules to watch out
for is, as Wright says, “unfortunate”
and occurs where an employee buys a
colleague a gift – on behalf of the business
– and is reimbursed by the employer. This
would not meet the criteria for exemption
because, Wright explains, “it is crucial
that it is the employer who incurs the cost
of the benefit directly.”
In more detail, where an employee
is retiring and a colleague, with the
employer’s permission, buys a £40 bottle
of wine as a present from the company
and submits an expense claim for the
wine, the purchasing employee will lose
out. The recipient will not pay tax on
the value of the wine, and the company
will not pay NIC on it because it is a
trivial benefit. “But,” says Wright, “the
purchasing employee may have to pay
tax on the £40 reimbursed to them by the
company as if it was part of their normal
pay… this would have been avoided if the
employer had bought the wine directly.”
Directors are treated differently
For good reason Wright details a specific
rule that applies to directors of close
companies – that is, a company 50
percent or more of which is owned
either by its directors, or by five or fewer
shareholders.
Here he says that “the cost of trivial
benefits that close company directors can
receive from ‘their’ company is capped
at £300 per tax year; this includes the
value of any trivial benefits received by
members of the director’s household (say,
partner, children, parents) unless they
themselves are a director or employee of
the company.”
The reason is obvious – anything
otherwise would be open to abuse as
directors control the business and its
spending.
Take-away message
It’s very clear that employment
relationships have seen significant
changes in recent years. All-employee
events such as team lunches may be
harder to arrange due to the increase in
remote working, but this doesn’t reduce
the need for team-building and other
efforts to increase staff retention.
In Wright’s view, used properly, “the
trivial benefits exemption can help boost
staff morale and build loyalty between
employers and employees. Remote
working is no barrier to its use, since
small gifts posted to home-workers can
still be covered by the exemption, as long
as the total cost per head to the employer
does not exceed £50 per gift.”
However, the pitfalls identified above
require careful consideration, and so
Wright reckons that employers would
be “well advised to keep records of the
costs of all trivial benefits provided in
case HMRC raise any questions later.
Documenting the cost of trivial benefits
and the reasoning behind them is good
practice, but especially so where they are
provided to company directors.”
None of this, of course, trivialises the
value in giving a gift.
Sam Allard is a freelance business writer.
Brave | Curious | Resilient / www.cicm.com / July & August 2023 / PAGE 39