It’s that time of year again, when it is traditional for tax advisers to remind employers what tax-advantageous Christmas gifts HMRC will allow them to make to staff. After all, even Scrooge was moved to purchase the prize turkey for his clerk, Bob Cratchit, on Christmas Day.
For employers who make Christmas, or other seasonal, gifts to employees, changes to the trivial benefits-in-kind rules from 6 April 2016 may well be beneficial. These rules replace a previous, more informal, method of agreement with HMRC, and provide a statutory exemption for what is defined as a trivial gift.
Under the exemption, a gift is considered trivial, and is therefore exempt from Income tax and National Insurance consequences for both employer and employee, where it meets the following conditions:
• The gift is not cash or a cash voucher
• The cost of the benefit does not exceed £50 for each employee
• The benefit is not provided under a salary sacrifice or other arrangement
• The benefit is not provided in recognition of particular past or future services performed by the employer – so a gift on the occasion of Christmas would meet this requirement
For some companies, particularly family owned companies, which meet the definition of close – i.e. the company is owned and controlled by five or fewer participators – there is an additional annual cap on the aggregate value of trivial benefits paid to directors or office holders or employees related to them. This cap is £300. Apart from this situation, there is no limit on the number of trivial gifts that can be made to an individual employee during the year, although HMRC will not accept an employer trying to divide a larger gift into smaller gifts that fit under the limit.
If the cost of a gift, including VAT, exceeds the £50, then the full value of the gift is taxable under the usual benefits rules. The relevant rules will depend on the nature of the gift.
Examples of gifts that will qualify under the trivial benefit rules– which can include the gift of a turkey provided that the average cost is under £50 – can be found in HMRC’s guidance here. The guidance also includes details of how to calculate the average cost. HMRC are expecting people to apply common sense and not to attempt to bring a number of more expensive gifts under the limit by averaging with similar, cheaper gifts – so it would not be reasonable to average gifts of a whole turkey costing over £100 to a few member of staff with a gift of a £5 leg to everyone else!
The trivial benefit rule could also be used to cover a Christmas meal or party costing under £50 a head if the usual, annual staff parties and annual functions cost limit either doesn’t apply, or the limit of £150/head has been used on another event in the year.
From all at ATT we wish you a Merry Christmas and a very Happy New Year. To show how our technical team have been busy getting into the festive spirit, they have even turned one of this year’s many Finance Bills into a Christmas Tree for a charity competition!