As a result of a recent change of policy, the ability to give benefits tax-free has now become reality. Philip Fisher, Chantrey Vellacott DFK, reports.
Unfortunately, it only relates to benefits that can be regarded as “trivial”. Even so, for large organisations, the chance to give a couple of bottles of wine to each employee at Christmas without any tax or NIC implications could be worth tens or even hundreds of thousands of pounds.
Regrettably, “trivial” is not properly defined anywhere as this exemption is not even embodied in legislation.
The first thing to establish is that as there is no specific exemption for trivial benefits. They must be included on Forms P11D unless prior clearance has been received from HM Revenue & Customs. Any employer that fails to carry out these procedures correctly could fall fail of the penalties regime with regard to incorrectly completed Forms P11D and worse, might get stuck having to pick up their employees’ tax charges.
At the moment, there is very little published information with regard to trivial benefits except on the HM Revenue & Customs website in the Employment Income Manual.
This states that “in some cases you may be asked by an employer to treat a benefit as exempt from tax, on the grounds that the cash equivalent of the benefit taxable on the employee (or on each of the employees concerned if there was more than one of them) is so trivial as to be not worth pursuing”.
Where, in the past, they stuck rigidly to the rule that there was no statutory de minimis limit instructions to Inspectors now explain “that does not mean that you should insist that every trivial benefit should be included on a form P11D or included in a PAYE Settlement Agreement, irrespective of the administrative burdens on both the employer and the Inland Revenue in handling P11Ds and PSAs”.
Interestingly, they explicitly accept that it is not reasonable to discriminate against large employers by seeking tax in circumstances where an Inspector would not bother if only a few employees were involved. This means that for an employer like the Royal Mail, which might have close on 100,000 employees, the savings as a result of the trivial benefits exemption could be very substantial. By failing to pursue income tax and National Insurance Contributions on a benefit worth say £25 per employee, the likelihood is that the overall amount foregone by the Exchequer would be somewhere in the region of £1million.
While there is no monetary limit below which a benefit will inevitably be regarded as trivial in nature, the Revenue gives some guidance as to the factors are likely to be critical in deciding whether a benefit qualifies.
- a.The cost of the benefit provided to each employee. They emphasise that this is not be viewed relative to the level of the employee’s income nor to the number of employees who receive the benefit.
- b. The circumstances in which the benefit is provided so that a reward for an employee for services would normally be taxable while a benefit that is more related to staff welfare could be trivial. This definition is decidedly confusing in the context of examples provided later.
- c. Whether it is reasonable to require the employer to make form P11D entries for the benefit concerned
- d. The resource cost to the department (within HM Revenue & Customs) in handling the forms P11D, and coding and self-assessments, when related to the amounts of tax and NIC at stake.
Cash benefits and benefits with money’s worth
In particular, cash benefits, benefits that have a “money’s worth” and non-cash vouchers will never be regarded as trivial benefits. Examples given include:
- Money, or something that can be turned into money
- Something that is nearly as good as money for example store vouchers or an account with a local retailer.
- Where the benefit clearly saves the employee money for example home to work travel or
- If the benefit is subject to statutory limits which an employer wishes to extend. The obvious example here is the exemption for an annual party.
In an effort to be helpful, the Revenue gives a list of examples that would normally be acceptable as trivial benefits.
Tea and Coffee
The first example is tea and coffee although in reality, it is hard to believe that any employer has regarded such benefits as taxable, even where the canteen exemption didn’t apply.
Small Gifts to Employees
It has long been a bizarre result of the application of legislation that where flowers are supplied for births, marriages or deaths they have strictly been taxable benefits. Indeed, HM Revenue & Customs offices have sought to recover tax during compliance visits. Now, the manuals explicitly provide that a small gift in recognition of a particular event such as a marriage that is not part of any reward for services that benefit should be treated as trivial.
They go further and suggest that where seasonal gifts such as a turkey, an ordinary bottle of wine or a box of chocolates at Christmas is provide these would also be considered as trivial.
In a spirit of generosity that even Ebenezer Scrooge would regard as quite acceptable, they are willing to accept that “if a gift extends beyond one of the items mentioned above, for example from a bottle or two to a case of wine, or from a turkey to a Christmas Hamper, you will need to consider the contents of costs before being able to determine whether the benefit is trivial”. In these cases the local Inspector will need to look at all of the factors objectively and use their own judgement to decide whether they regard the benefit as trivial.
The conclusion that one must reach from this information is that every employer should be considering the list of benefits that they provide to employees and “chancing their arm” by requesting that HM Revenue & Customs included these within a letter offering a trivial benefits exemption.
In reality, it will take some time for this new non-legislation to settle down and for a fuller understanding of what constitutes a trivial benefit to percolate through