HMRC makes pig's ear of bacon roll trivial benefits claim

Bacon Rolls
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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 EIM21864EIM21872.

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:

  1. the cost of providing the benefit does not exceed £50;
  2. the benefit is not cash or a cash voucher;
  3. the employee is not entitled to the benefit as part of any contractual obligation; and
  4. the benefit is not provided in recognition of particular services performed by the employee as part of their employment duties.

Regularity

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.   

Food for thought

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).

Director’s cap

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?”

“No of course not. Cheers!”      

About Rebecca Cave

Consulting tax editor for Accountingweb.co.uk. I also co-author several annual tax books for Bloomsbury Professional and write newsletters for other publishers.

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By nicdell
31st May 2019 10:38

Very clear and useful article. Thanks.

Thanks (4)
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By sawebs
31st May 2019 10:53

Interesting article. No surprise HMRC don't understand their own rules. Was a bit confused by the last section - if I want my PSC to give me and my wife £300 each of wine each year, why does the fact that I am making the decision myself make it a "reward for services" any more than if the same conversation was had between say HR and Finance Director? Would the £600 be deductible for CT and VAT purposes?

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31st May 2019 11:23

So fortunately my wife is a director as well. So we can have a chat like;

"Gee its spring, a happy time. Lets give a case of rose wine from the company as a gift to one of us"

So now I can have a case of wine on the company. Right?

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By sawebs
to Rgab1947
31st May 2019 11:35

Exactly, why not? How is it different to a manager saying to his team "I've got you each a bottle of wine because it's Friday"? What makes one a trivial gift and another a "reward for services"? I understand why people might think it just "doesn't feel right" but in law what makes it any different?

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31st May 2019 11:59

Maybe the overriding point is:
Does attending HMRC webinars help or hinder learning and getting it right if they spout forth complete rubbish and in accuracies?
Could we use their commentary as a defence for getting it wrong in a tribual?
Having 'attended' one the other day, bailed out half way thru as it really dragged on and instead downloaded it the next day with the intention of watching later. Maybe I should keep it as evidence :-)

Thanks (2)
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31st May 2019 12:20

Very useful article, thank you!

This is a constant source of confusion in our payroll department, and I now have the facts to back up my claim that our "pizza & prosecco" treats are not taxable benefits.

Yes, they happen every now and then; , no, we never know when the boss will decide he fancies a pizza and prosecco day.

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31st May 2019 13:26

my co-director wife and I have the same "you deserve this gift" conversation six times £50 a year.

Just make up a reason: new grandson, a wedding, a divorce...whatever.

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31st May 2019 14:47

If HMRC can't get it right, how can they demand penalties when taxpayers get it wrong?

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By KTS
31st May 2019 17:59

Would a case of wine fall within the definition of trivial? I've only ever seen examples that state bottles under £50 are fine as trivial but that a case wouldn't be as it would go beyond - the previous guidance specifically stated it but the new legislation only refers to bottles in the examples but is mute in relation to a case

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By sawebs
to KTS
31st May 2019 22:29

Not sure I'd want a case of wine costing £50 to be honest, but a couple of bottles would do!

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to KTS
01st Jun 2019 10:19

A case of wine for under £50 quid; 1960's Corrida?

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01st Jun 2019 12:28

Interesting, relevant and delivered with such entertaining wordplay! A joy to read, thank you Rebecca.

Thanks (1)

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