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Contractual obligations Whether a benefit is provided under a contractual obligation, or as part of a salary sacrifice arrangement, should be fairly obvious in most cases. However, bear in mind that a contractual obligation can arise not only from a term in an individual’s employment contract, but also through other agreements. Look out for anything which could be seen as obliging the employer to provide the benefit in question. HMRC does helpfully say that just because a gift is provided to everyone, or every year, that doesn’t necessarily mean there’s a contractual entitlement. As a result, it would not normally seek to challenge modest gifts or benefits provided infrequently to employees, such as at Christmas. In recognition of services In order to be exempt as a trivial benefit, the benefit cannot be given in recognition of past or future services of the employee. Therefore, any benefit provided for hitting sales targets, working overtime etc. will not qualify. Instead, typical trivial benefits will have a genuinely voluntary element – such as a bunch of flowers to mark a birth or bereavement. Where a benefit is provided on a regular or frequent basis, HMRC may seek to argue that it’s linked to the employee’s services. The reasoning being that, as trivial benefits have a cost to the employer with nothing received in return, they will only be given out infrequently in practice. Directors and the £300 cap For close companies, there’s a £300 per tax year cap on the trivial benefits that can be provided to directors, their families and households. Each director gets their own £300 cap, but any benefits provided to spouses / civil partners, children and their spouse / civil partner, parents, domestic staff, dependants and guests also have to be taken into account in applying it. If any of those family / household members are In order to be exempt as a trivial benefit, the benefit cannot be given in recognition of past or future services of the employee
themselves employees, they will get their own £300 cap. The £300 cap is cumulative and must be applied by reference to the exempt trivial benefits provided so far that tax year. Where the cost of a specific benefit causes the total cost to tip over £300, then none of that benefit will be exempt. However, the earlier benefits will remain exempt and any subsequent benefits which fall under the cap may also be exempt. For example, if in a tax year, a director receives seven trivial benefits costing £45 each, then a separate trivial benefit costing £30: l the first six £45 benefits total £270, which is below the £300 cap meaning all are exempt l the seventh £45 benefit brings the total cost to £315, which would exceed the cap and therefore none of this benefit is exempt l the £30 benefit brings the total cost to £300, so will be exempt. It’s important to keep clear records of benefits provided (particularly to directors) so that you can provide evidence should Final words As can be seen from the above, the trivial benefits rules are, at times, anything but trivial. In all cases it’s important to keep clear records of benefits provided (particularly to directors) so that you can provide evidence should HMRC ask any questions. It’s also worth bearing in mind that, just because something doesn’t qualify as a trivial benefit, it may still qualify for another specific exemption (such as those for annual functions, long service awards etc.). Where a benefit might be both trivial and qualify for another exemption, you should apply whichever gives the best outcome for the employee. n HM Revenue and Customs ask questions
Duration Half day
Learn how to process a number of common termination packages correctly, from redundancies to contractual breaches, retirement and death-in-service.
Visit cipp.org.uk/training to book your place
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| Professional in Payroll, Pensions and Reward |
Issue 85 | November 2022
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