Follow up

Trivial benefits exemption

[Weblink]

Rewarding long-term service tax efficiently

Long-service exemptions

The tax legislation does allow certain gifts to be made in recognition of long service, subject to some conditions. To qualify, the gift:

• must be for 20 or more years of service
• must not be cash or vouchers that can be converted into cash
• does not cost the employer more than £50 for each year of service; and that
• where more than one long-service gift is made to the same employee (or director) the exemption can only apply if there’s at least ten years between each gift.

As can be seen, the exemption only applies to non-cash gifts. Vouchers which can be converted into cash are also excluded, as well as shares, cheques, credit tokens and premium bonds, etc.

Pro advice. Vouchers which must be exchanged for goods and services, which cannot be converted to cash can be given within the exemption.

Lateral thinking

A gift of tangible property can qualify for the exemption - even though it might have a second-hand value. So making a gift of the latest smartphone or tablet would be fine provided the limit based on the number of years is not breached. In the case of our client’s employee, the limit would be £1,500, i.e. 30 x £50. Any excess is reportable as a taxable benefit. The problem is your client wants to provide the employee with something with a monetary value for the long service . What could you suggest?

Indirect cash

As the employee has been with your client for so long, they are likely to know them relatively well. One way of putting cash into the employee’s hand (without actually doing so) could be to purchase something that they would normally buy themselves. Do they have a season ticket at their favourite football or rugby team, a golf club membership, a travel card?

Pro advice. Ensure your client pays the provider directly if they wish to do this, and if possible purchase it as a gift option so that they have something tangible to give the employee.

A cherry on top?

If your client has chosen a gift, but wishes to add some further monetary reward, they could consider using the “trivial benefits” exemption (see Follow up ). This is also restricted to non-cash awards, and a maximum of £50; however, it can apply more than once. For example, it would apply to vouchers redeemable in local restaurants for £50 given each month for, say, a year. Given the length of the service, it is likely that the employee is approaching pensionable age. Your client could consider making an employer’s pension contribution, of which 25% would be tax free when accessed. If they are already 55, they can do this immediately. So making a contribution of £4,000 could put £1,000 in their pocket tax free.

Pro advice. It is advisable to set up a separate pension scheme to do this if the employee is going to continue making pension contributions. As a bonus, this could potentially qualify as a small pot, which can be taken tax free and doesn’t trigger the money purchase annual allowance.