REWARD
GemmaMullis ACIPP, CIPP policy and research officer , outlines issues to be considered by employers giving gifts Saying thank you?
A s Christmas and the festive period approaches employers may be considering giving employees a gift, perhaps to say ‘thank you’, particularly when reflecting on the year we have endured so far. Popular seasonal gifts include wine, chocolates, and turkeys. Employers should make themselves aware of the tax implications that may arise as a result of their generosity, as giving an employee a gift that they are later taxed on may adversely affect morale. Trivial benefits Section 323A of the Income Tax (Earnings and Pensions) Act 2003 sets out a statutory income tax exemption for trivial benefits. If an employer provides a benefit to an employee (or to a member of the employee’s family or household), the benefit is exempt if all the following conditions are satisfied: ● it costs the employer less than £50 to provide ● it is not cash, or a voucher that can be exchanged for cash ● it has not been given as a reward for performance at work ● it is not detailed in their contract of employment. Some of the above four conditions are easier to satisfy. A receipt or invoice will prove the cost of the gift purchased; and the employee’s contract will confirm whether the gift is or is not a contractual requirement. Proving that it was not given as a reward could be trickier if it is not given to all employees, so this may be something to be considered when providing gifts.
...no limit on how many trivial benefits can be given over the course of the tax year...
There is no limit on how many trivial benefits can be given over the course of the tax year to an employee; however, for directors of ‘close’ companies (i.e. limited companies with five or fewer shareholders), there is a limit of £300 that can be given to the person (or to a member of their household) in any tax year. (The £300 limit is per individual and per employer.) Where the employer provides benefits and considers them as trivial, suitable records must be kept demonstrating that the £300 limit has not been exceeded. Although certain benefits provided under a salary sacrifice arrangement do not attract income tax liability, any other benefit that is given via a salary sacrifice arrangement, including those that would otherwise fall under the trivial benefit exemption, do attract liability. This is because in order for the exemption to apply the employee must not be entitled to the benefit as part of a contractual Example 1 An employer provides each of its 100 employees with a turkey. As a bulk order, the turkeys have not been priced individually but would cost in the region of £40 to £60, with the total bill coming to £4,500. As HMRC accepts an averaging approach giving a cost per head of £45 (i.e. £4,500 ÷ 100), the benefit can be covered by the exemption.
obligation (including under salary sacrifice). Just because a gift is provided each year, or is provided to all staff members, does not mean that the employee has a contractual entitlement to it. However, if an employer provides their employees with benefits on a regular or frequent basis HMRC might well consider there is a link to the services. If the cost of providing the benefit exceeds £50, the full amount is taxable, not just the excess over £50. In determining the cost of the benefit for the purposes of the exemption, the VAT inclusive amount is used. Where the benefit consists of more than one item the cost of providing the benefit is the total cost. A commonplace scenario occurs where the employer gives a gift to each worker paying an overall amount to a supplier without knowing the cost of each specific gift and whether the £50 limit is Example 2 The employer gives each of its 25 workers a bottle of wine with the total bill coming to £1,000. This package comprises 20 bottles at £15 and 5 bottles at £140 each for senior managers. It is not impracticable to determine the cost of the individual benefit to each worker, so the benefit of the £15 bottles can be covered by the exemption but the benefit of the £140 bottles cannot.
| Professional in Payroll, Pensions and Reward | December 2020 - January 2021 | Issue 66 32
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