A new statutory exemption for trivial benefits which are provided to employees was introduced from 6 April 2016, as we explained back in June 2017 (see trivial benefits post).
The trivial benefit rules allow an item worth up to £50 to be provided tax-free and NIC- free to any employee on unlimited occasions, as long as all four conditions are met for each gift, as we set out in our blog post. There is an annual cap of £300 for gifts provided to the company directors and their family members, where the company is “close” (eg small family company).
HMRC is unhappy with the potentially unlimited value of trivial benefits for employees, so it has attempted to redefine the rules in the last two Employment Bulletins (issues 80, see page 11 & 81, see page 4).
HMRC has invented two new rules:
Series of gifts
Where a single gift is part of a series of gifts, you need to look at the total value of the series to determine if the £50 limit has been breached. This would be the case where a gift card is provided and the value on that card is topped-up on several occasions during the year. This is a reasonable interpretation of the rules.
Where the employer is required to provide the item as part of the employment contract, it is a contractual obligation and not a trivial benefit. For example, you may provide a calculator to each member of staff as their employment contract says they will be provided with all the necessary tools to complete their job.
An employee, working in the accounts department, for example may have a “legitimate expectation” that the firm will provide them with an adequate calculator, even if that is not stated in the employment contract. However, that does not make the gift of a calculator a contractual obligation.
HMRC has implied that if an employee has a legitimate expectation of receiving an item that makes the provision of that item an effective contractual obligation, but that is certainly not the case. Where the employee has no legal grounds to object to the withdrawal of the benefit it would not form part of their contract.
HMRC appears to be stretching the trivial benefit rules one step too far. If your client is challenged on the basis that the employees have a legitimate expectation of the benefits, and thus they don’t qualify as trivial benefits, ask our employment tax experts for advice.