On the ninth day of TAXmas, we advise to thee on the conditions for trivial benefits...
As Christmas is just around the corner, the words ‘trivial benefits’ may come to mind for some employers when trying to find a way to treat their employees to a little something this holiday season. However, there are certain misconceptions about ‘trivial benefits’ that employers should consider when Santa comes to visit this year.
Is the gift under £50 including VAT?
The condition for trivial benefits to be under £50 is usually well-known by employers, but don’t forget that the £50 limit is the VAT inclusive cost. It is an easy mistake to make, but one to consider as VAT may be the difference between a trivial benefit being tax-free, or fully taxable and needing to be reported on the employees P11D or a PSA.
Is the gift a reward for their work or performance?
A gift at Christmas is usually a way for employers to spread the festive cheer to their employees. In this case, HMRC would grant that a gift for this reason would be considered a gesture of goodwill not in recognition of employees’ work or performance. However, for other occasions employers need to be aware of what may be considered as a reward to their employees, and thus not exempted as a trivial benefit. For example, a common reward employers may provide is employee of the month gifts. Employers should also be wary where they provide their employees with a regular or frequent benefit, whether these would instead be linked to the employee’s services.
Is the gift reimbursed by the employer?
A rule in particular to watch out for is where a benefit is provided by one employee to another, and then reimbursed by the employer. In this case, HMRC does not accept reimbursements under the trivial benefit exemption. For example, if an employee wanted to shop for some Christmas gifts on their employer’s behalf and they were in return reimbursed for the cost of the gifts, the trivial benefit exemption would thus not apply as the employer has not paid directly for the benefit.
If you need any help with employment tax matters, either for the Christmas past, present or the future, please get in touch with us at employmenttaxesteam@unw.co.uk.
