For the fourth time in a row HMRC has included advice about trivial benefits in its Employer Bulletin, it says to clarify matters. In reality it’s back pedalling on its previous erroneous advice about when the trivial benefits exemption applies. What’s the full story?

A trivial story

It started with a bacon roll in May 2019 and finished with a Christmas gift in February 2020. We’re of course talking about the tax and NI exemption for low value (trivial) benefits provided to employees. In a webinar in May 2019 HMRC suggested that if provided to staff on a regular basis bacon rolls would not be covered by the exemption despite the small cost per head.

HMRC’s argument, which has some merit but is contrary to the spirit of the exemption, is that providing a perk regularly means that employees have a “reasonable expectation” of receiving it. In effect, the workers would have a contractual right to bacon rolls (sounds good to us!).

Trap. The legislation includes the condition that for the exemption to apply the benefit must not be “provided pursuant to relevant salary sacrifice arrangements or any other contractual obligation” .

The story continues

Following the bacon roll debacle HMRC was called out by tax experts for its interpretation of the rules. In response it published basic guidance on the exemption in its August 2019 Employer Bulletin . It followed this with further guidance in its October Bulletin , but dug itself into a hole by adding more spin on the rules. It kept digging the hole in its December Bulletin by restating its bacon roll argument, this time substituting cream cakes.

Note. The key point is that HMRC says that “regular” benefits create a reasonable expectation of them, which equates to a contractual right and this breaks the condition of the exemption.

The trouble with HMRC’s view

Tax experts challenged HMRC, saying that apart from overreaching the legislation its view defeats the purpose of the exemption which was introduced to replace HMRC’s long-standing practice of not taxing low-value perks such as a few bottles of wine or a gift token. Christmas gifts are a clear example of regular benefits that employees have a “reasonable expectation” of receiving. If HMRC’s December 2019 interpretation is correct, staff Christmas gifts fail the contractual condition and are taxable, which, as we’ve said, is contrary to the very reason the exemption was introduced.

HMRC back pedals

In February 2020 HMRC’s latest Employer Bulletin included yet more commentary on trivial benefits. It says that following “feedback” on its previous statements it can clarify the position. It says that Christmas, birthday and staff gifts for similar events are covered by the trivial benefits exemption because they are “unlikely to be contractual” – right answer, wrong reasoning! We can’t think of a more obvious case of “reasonable expectation”. For this reason there may be even more HMRC guidance to come.

Tip. You’re fine to treat Christmas and other customary staff gifts as exempt benefits if they cost no more than £50. In practice, you can do the same for bacon rolls and the like (which in any event might be covered by a different exemption) provided there’s no clear contractual entitlement to them.

HMRC accepts that Christmas, birthday etc., gifts to your staff are covered by the trivial benefits exemption, subject to the £50 limit and other conditions. However, it doesn’t extend this view to other perks provided regularly as it considers them contractual. In practice, unless the employees clearly have a right to the perks, the exemption can apply.