After our article on trivial benefits in last month’s Employer Focus, HMRC issued more guidance on some aspects of the rules in December’s Employer Bulletin. Employers relying on the trivial benefit exemption to cover gifts should look at this guidance, as it may be stricter than you expect.
What is a trivial benefit?
The basic rules for a benefit to be considered trivial are:
- the cost of the gift, including VAT, does not exceed £50 per employee;
- the gift is not cash, or a cash voucher (a voucher which can be exchanged for cash);
- the gift is not provided under a salary sacrifice or other contractual arrangement; and
- the gift is not provided in recognition of particular past or future services performed by the employer.
There are additional restrictions for directors and office holders of close companies, which we covered last month.
HMRC’s latest guidance covers the third and fourth tests above, along with advice covering the position where an employer provides their employees with an app which gives access to discounted products or services.
Test 3 - Contractual arrangements
The legislation provides that a gift provided under a salary sacrifice or other contractual arrangement cannot qualify for the trivial benefit exemption, no matter how small.
In HMRC’s view, anything that the courts might consider a contractual arrangement should be considered, including:
- A side letter to the main contract document.
- A staff handbook.
- A letter of appointment.
- A redundancy agreement.
- An employer union agreement
- Any legitimate expectation
While the first five items are relatively uncontroversial, and are highlighted as sources of information that might be considered in other circumstances such as termination, the addition of the term legitimate expectation has raised concerns among commentators.
As an example of where HMRC consider that legitimate expectation applies, the guidance looks at a firm that buys cream cakes for its staff each Friday. Where the staff have an expectation that this policy will continue, in HMRC’s view the trivial benefits rules would not apply to this regular gift.
This suggests that HMRC are seeking to take a strict line on the application of the trivial benefits rule and employers who make regular gifts to employees should review their position.
Other areas to watch
HMRC also highlights two further areas where the trivial benefit rules might not be available.
Test 4 – Working for lunch
A gift cannot qualify as trivial if it is provided in recognition of services. HMRC give as an example an employer who provides a free lunch as a form of compensation to employees requested to work through their lunch hour. This will fail to qualify as a trivial benefit because the lunch is given as a form of compensation for the work during the lunch hour.
Again, employers should watch that gifts are not intended to compensate employees for their work.
Some employers provide their employees with access to discounted products or services via an app. Where the cost of providing access to the app is less than £50 per employee, then this should fall within the exemption.
However, where the employer also pays for a product or service that the employee obtains via the app, then it is the total cost of that product or service over the year which need to be considered. Once the limit of £50 is breached, then the whole value of the benefit provided is outside the scope of the relief.
For example, if the employee receives a service worth £35 once through the app in a given tax year, that would be under the limit, but receiving it a second time in the same tax year would take the total cost to £70 and the trivial benefit rules would no longer apply.
The example does not go on to consider the position where an individual receives different benefits through the app – say perhaps a service one month and an unrelated product the next, both of which are paid for by the employer. We would assume that the test is applied to each product/service but employers may wish to take advice on the point.
The additional guidance from HMRC shows how employers need to appreciate that the trivial benefit rules are very much non-trivial.