A recent HMRC webinar caused hilarity and confusion in equal measure when the presenter claimed the provision of regular bacon rolls for staff couldn’t be classified as tax-free trivial benefits, but implied that gifts of wine could be tax-free.
The presenter of a recent HMRC Talking Points webinar was reported to have said that the cost of the weekly bacon rolls would have to be aggregated over the entire tax year, and if the total cost exceeded £50 the sarnies would be taxable.
This is total hogwash.
The cost of gifts provided to staff do not have to be aggregated over the tax year to check if those items can be classified as trivial benefits. The £50 limit is per gift, not per year, and unlimited numbers of items can be provided per staff member as tax-free trivial benefits in any year.
There is an annual limit of £300 for trivial benefits provided to directors of close companies, but that aggregation rule doesn’t apply to ordinary members of staff who are not connected to the directors of the company.
Read the law
I suspect the HMRC presenter had not actually read the law concerning trivial benefits contained in ITEPA 2003, s 323A, or the clear explanation in HMRC’s Employment Income Manual at EIM21864 – EIM21872.
If the presenter had relied on the brief description of trivial benefits on gov.uk they may have been confused, but it is really no excuse to spread that confusion to attendees of an HMRC webinar specifically designed for tax agents.
Meat in the sandwich
In the Q&A chat accompanying the Talking Points webinar, the answers given by HMRC focused on the monetary limits of £50 and £300, muddled the two and confused everyone. But it is wrong to focus on those limits, as for a gift to be a trivial benefit all four of these conditions must be met:
the cost of providing the benefit does not exceed £50;
the benefit is not cash or a cash voucher;
the employee is not entitled to the benefit as part of any contractual obligation; and
the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties.
Conditions 1 and 2 are easy to assess but conditions 3 and 4 are less easy to pin down. Point 4 needs the employer to judge whether the item is provided as a reward for the services of the employee.
Say the employer promises to provide bacon rolls to those employees who turn up to help with a stock-take every Friday morning. This is part of the employees’ duties and the hot sandwich amounts to a reward for performing those duties so condition 4 is broken.
If the employer provides bacon butties or perhaps a bottle of wine as an unexpected treat to employees, that can be classified as a trivial benefit as the employees don’t have to do anything in order to receive the treat.
Regular gifts, eg a bacon roll every Friday, may come to be expected as part of the reward for working for that employer and completing a regular task. As soon as the benefit is expected by staff (or promised by the employer) in recognition of the extra effort made by the staff, it ceases to qualify as a trivial benefit.
If all the staff members are provided with regular free or subsidised breakfast or other meals at the workplace, that would not be a trivial benefit. But the provision of food could be tax-free under the rules applying to a staff canteen (see EIM21671).
Where trivial benefits are provided to a director or officer of a close company or to a member of the director’s family or household, there is an annual cap of the value of items which can be treated as trivial benefits: £300 per year.
The same four conditions must also apply to those trivial benefits for directors, including that the gifts must not be made as a reward for services.
This could make it difficult for a one-person company to use the trivial benefit rule to extract £300 worth of value as say wine per year from their company without it being a reward for services.
Imagine the director having this conversation with themselves:
“The company is giving me a case of wine.”
“Gee, thanks – what’s that for?”
“Nothing special – the company is feeling generous.”
“Not a reward for me increasing the company’s profits?”