Is there a value below which a gift to an employee does not


need to be reported or included in a PAYE Settlement Agreement?

Many gifts of small value given to employees are not reportable as employment benefits if they are of the nature of staff welfare and not a reward for services. Examples of benefits that tax inspectors are instructed to treat as "trivial" are

• the provision of drinks, i.e. tea, coffee and water from a cooling dispenser that, because they are not provided generally to all employees, does not meet the exemption for subsidised meals
  
  
• small gifts, such as a flower arrangement that is made in recognition of an event such as marriage or birth of a child but that is not a reward for services
  
  
• seasonal gifts, such as a turkey, one or two bottles of wine, or a box of chocolates at Christmas

There is no statutory value below which benefits are not taxable. The treatment of gifts as "trivial" because the tax that would be due on the cash equivalent value is not worth pursuing is an HMRC concession. Inspectors are given the following guidance:

• a benefit that is related to staff welfare may be treated as a trivial benefit but a benefit that is a reward for specific services is always taxable, whatever its value
  
  
• a benefit in the form of cash or vouchers is always taxable, whatever its value
  
  
• it is the cost of the benefit to each employee that is significant, not the overall cost to the employer - if a gift is trivial for one employee, it is also trivial for 100 employees, or for 1,000 employees, even though the cost to the employer may be considerable
  
  
• the term "trivial" is not viewed relative to the level of an employee's income or to the amount of the employer's costs; rather it is a comparison between the tax and NICs at stake and
  
  
  • the administrative burden on the employer in completing P11Ds for each employee or in handling a PSA
    
    
  • the cost to HMRC of handling and processing P11Ds and self-assessment returns, and issuing coding notices.

Tax inspectors are also instructed to "use common sense" and to "strike a balance between sensible practical administration of the tax system and the need to deter employers from providing what is in reality part of the remuneration of their employees in a form that seeks to exploit that practical administration".

Based on the criteria given above, employers should be able to distinguish between

• a box of chocolates given to an employee for achieving weekly targets and the same gift given to all employees at Christmas
  
  
• a turkey given to an employee at Christmas and a voucher given to an employee at Christmas that may be redeemed at a local retailer for a turkey.

Some employers have historically included such "trivial" gifts in a PSA, dating back to the time when HMRC did not take such an enlightened view of gifts. It would be sensible for them to contact their tax office and renegotiate the agreement.

Further information: http://www.inlandrevenue.gov.uk/manuals/eimanual/eim21860.htm and following pages

...back to 14 September 2006

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