Are HMRC after your cream buns?
If you give your employees cream buns every Friday, you may have created a legitimate expectation with your employees that they are entitled to get cream buns at the end of every week.
What? Well, according to HMRC, by creating a legitimate expectation, you have also created a tax and NICs liability which means HMRC want its share of the cake. This was what was reported in HMRC’s December Employer Bulletin, in an article about the trivial benefit exemption.
Does this mean that if you substitute a turkey or gift vouchers at Christmas for the cream bun on Friday, you have created a legitimate expectation and a tax bill as well? No, you haven’t (if the gift cost less than £50 and if it was a voucher, it wasn’t redeemable for cash). Although, that’s not what HMRC appear to be saying in this article.
The writer said, quite correctly, that gifts given to employees as part of salary sacrifice arrangements or any other contractual obligations, would not meet the terms of the exemption and would therefore be liable to tax and NICs. The author then said that a contractual obligation can exist even if it has not been written down, if it is ‘a legitimate expectation’.
The cream cake rationale seems to drive a coach and horses through this generous exemption, and I don’t think it is right. The whole point about the trivial benefit exemption was to allow employers to recognise their employees as people, with a kind gesture at certain times of the year, such as Christmas or birthdays, without being bogged down in tax administration and adding unnecessary costs.
Arguments about what used to be called the ‘turkey tax’ are not new. HMRC has always allowed employers to give their staff small gifts at Christmas or on their birthdays without having to pay tax or NICs. However, until 6 April 2017, this was an informal arrangement and treatment varied from district to district.
From 6 April 2017, this position was formalised with legislation after a consultation process which also included a consultation on the draft legislation. It was in this part of the consultation that respondents asked whether providing small gifts on employees’ birthdays or at Christmas – events which reoccur every year – would constitute a pre-arranged entitlement, and therefore be excluded from the trivial benefit exemption.
The Government’s response was quite clear.
They said that gifts given regularly for non-work or performance related reasons, because of a corporate policy, which were not a contractual entitlement could be exempt under this legislation.
HMRC’s guidance at EIM21867 echoes this and advises HMRC staff not to normally seek to challenge modest gifts provided infrequently to employees, just because they are given to employees each year – for example, a Christmas or birthday gift.
I’ve never seen an employment contract that does refer to Christmas or birthday presents yet, but you may want to just check.
Phew – saved just in time for the big HO HO HO!