SIMPLIFICATION

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SIMPLIFICATION

The government frequently talks about simplifying tax.  So what does simplification mean?  In June HMRC issued a consultation document, “Employee Benefits and Expenses – Trivial Benefits Exemption”.

This proposes a new exemption for trivial benefits.  Well, that sounds like simplification doesn’t it?  It explains that examples of benefits in kind that “HMRC accepts as trivial include a small gift (such as a bouquet of flowers) given to an employee to celebrate a personal event, such as the birth of a child, or small items, such as a box of chocolates, given to an employee at Christmas”.

I don’t want to encourage tax evasion, but I suspect that before the issue of this document, most employers would not have dreamt that a bouquet of flowers sent to an employee on the event of her baby’s birth is a benefit in kind.  It was held by the Upper Tribunal in HMRC v Apollo Fuels Ltd that the benefits provisions apply not where a person makes a payment in relation to an employee but only where the employee actually receives a benefit.  I doubt that anyone feels they have benefitted from a bouquet of flowers from the office.  It is nice to know that they are thinking of you (or not, if you regard it as a reminder that they expect you to come back to work) but that is surely not a benefit, so it is doubtful whether it is legally a taxable benefit at all.

Nevertheless, if the government want to formally exempt things that in practice most people probably already regard as exempt, surely no one is going to complain.

But the government does not propose to exempt trivial benefits; it proposes to exempt them only up to a limit.  It believes (presumably) that if it simply exempts them, employers will start to send bouquets of flowers all over the place – they will not only send a bouquet for the birth of a baby, but will send a bouquet on its every birthday, on the employee’s anniversary of starting work, on the employee’s own birthday and wedding anniversary, on her return from holiday and on myriad other occasions.  If the government were to simply exempt trivial benefits, the whole country could quickly become overwhelmed with flowers.  Clearly firm government is needed to prevent this happening.  The desire for tax simplification needs to be balanced against the risk of civil unrest that would be bound to ensue if some employees were to receive more flowers than others because they have more anniversaries than the norm.

The document tells us that “the government believes that employers and employees will welcome the certainty and transparency that the inclusion of a monetary limit in the definition of a trivial Bik will provide and therefore intends to set such a limit”.  So it is your fault!  Somehow you have convinced the government that is what you want! (It’s not my fault because I am neither an employer nor an employee).

HMRC have put forward two possible ways to meet your wish.

Annual exemption

1.      The employer decides whether a benefit is trivial.

2.      He records the cost of every trivial benefit that he provides (not just flowers but anything of small value (other than cash and items already exempted from tax)).

3.      He keeps a running total of that cost for each individual employee.

4.      The trivial benefit that breaches the annual exemption – perhaps £75 – will be taxable as will any subsequent benefits that would breach it.

Number of trivial benefits

1.      The employer decides whether a benefit is trivial.

2.      He records for each employee that fact that he has provided a trivial benefit.

3.      He keeps a running total of the number of benefits for each individual employee.

4.      A benefit that breaches the allowable number (HMRC suggest 2 must be a reasonable number) is taxable.

Which of these methods did you have in mind when welcoming certainty and transparency?

Both seem to me to involve a lot of work for employers.  But perhaps simplification is really about reducing the burdens on HMRC rather than reducing burdens on business.

Obviously, to further deter avoidance the government intend to define what is trivial.  They don’t want to create a list of trivial items.  It will be principles based.  The law will set out a number of principles.  In that way, each time an employer provides a trivial benefit (HMRC seem to have in mind something costing £30 or less – although I doubt that you can get a decent bouquet for £30) he can consider these principles and decide whether or not the benefit is a trivial one.  He will of course face a penalty if he gets it wrong unless he can show that he exercised reasonable care in giving proper consideration to the guiding principles.

But if that is what employers and employees both want, far be it for me to seek to interfere with the fulfilment of this desire.

ROBERT MAAS