There are numerous accounts of tax officers trying to tax the provision of tea and coffee for employees, and whilst some of these amount to an urban myth, the tax rules about providing a bacon (or vegan alternative) sandwich for your employees as a trivial benefit are not straightforward.
HMRC has long since tried to play down these stories, insisting that common sense comes into play – as long as drinks are available for all employees, then it accepts that no tax charge arises, for example, on the provision of coffee and tea. However, other quirks remain. Thus the provision of food for a working lunch in the office would have no tax consequences – whilst a working lunch off site would.
However, in 2016 HMRC acknowledged the difficulties and introduced rules about “trivial benefits.” These rules provide objective guidance on what can be ignored for tax purposes. The rules state that the “benefit:”
- Must not be cash or a cash voucher
- A gift voucher, which is only exchangeable for goods or services, can be a trivial benefit. Gift cards from High Street brands will almost definitely meet these requirements
- The cost must not exceed £50
- The provision is not a contractual entitlement.
As well as covering ad hoc bacon sandwiches and daily tea and coffee, these rules can also apply to gifts from the employer to employee. Whilst the most common use is for Christmas gifts, the rules also establish that other items which over zealous tax officers apparently tried to tax are now out of bounds – such as bouquets of flowers or bottles of wine on the occasion of significant life events.
More than one benefit or gift can be provided each year, but if they are to a director or members of a director’s family, then there is an annual £300 limit.
For larger employers, the provision of a subsidised canteen – whether on or off site – is not taxable, as long as it is available to all employees. If a canteen is not available at all sites, then if it is also available to any visiting employees, then the exemption from tax stands. The exemption for provision of 15p per day of luncheon vouchers no longer exists – but it was only abolished in 2013!
A final option, if none of the above options apply, to consider is the use of a “PAYE Settlement Agreement” – or PSA – whereby the employer pays the tax on behalf the employees. There are strict deadlines for arranging a PSA with HMRC:
- You must apply for one by 5 July following the end of the appropriate tax year
- It is good practice to apply for a PSA as soon as it becomes clear that one is required. This is because there are various forms that have to be signed, and calculations to be prepared
- The tax and NIC must be paid by 22 October after the end of the tax year
As ever, with tax, there is no simple answer – each position will differ depending on the precise circumstances and our tax team will be pleased to help you