Multiple tax-free perks for directors

Tax trivia

The “trivial benefits” exemption was introduced in 2016 to regularise and replace the long-standing HMRC practice of allowing employers to provide employees with low value perks. The exemption is open to directors on the same terms as other employees with one important difference.

The exempt amount is capped at £300 per tax year for directors.

General conditions

As you would expect, the exemption comes with conditions. Each benefit must not:

• exceed a cost of £50 (including VAT) to the employer
• be provided as part of a salary sacrifice or part of their contractual earnings
• be cash or a voucher that can be converted to cash; or
• be in recognition for particular services performed by the employee as part of their job.

The conditions are clear but in recent years HMRC tied itself in a knot trying to mould them to work as it would like rather than accepting them at face value.

For example, it says that if an employer provides a gift card and tops it up from time to time it is treated as a single benefit which is subject to the £50 limit as the card itself is the benefit and not the individual top-ups. This is patently nonsense. Each addition of value to a gift card is clearly a separate benefit.

Regardless of HMRC’s illogical view, when providing employees with gift cards avoid unnecessary argument with HMRC by giving separate gift cards on each occasion.

Multiple gifts

As already explained, there’s no limit on the number of trivial benefits an employer can provide apart from the £300 annual cap for directors. The trouble is that HMRC suggests that the value of multiple items should be aggregated.

Example. At Christmas Acom Ltd makes a gift of a turkey (up to the value of £50) and a separate gift of four bottles of wine costing it £48 in total. HMRC’s view is that these amount to a single benefit of £98 and so are not a trivial benefit.

In this instance we see HMRC’s point. While there’s nothing in the conditions of the exemption which says that the value of the gifts must be aggregated, we tend to agree with HMRC’s view.

Artificially dividing a benefit is not within the spirit of the exemption and it’s arguably caught by the tax general anti-abuse rule. This allows HMRC to cancel any tax (and NI) advantage resulting from unfair tax avoidance.

Exempt in practice

In practice it would be difficult for HMRC to refuse the exemption for a company that, say, provides a series of gifts over the Christmas period that individually meet the conditions. For example, six £50 gift vouchers given over a period of a few weeks. Nevertheless, there is a small risk HMRC might make a challenge.

Avoid hassle with HMRC by not concentrating trivial benefits over Christmas. Spread the gifts across the year on an ad hoc basis.