Here we explain what qualifies as a ‘trivial benefit’ according to HMRC and how you can reward your staff and company directors with a simple gift or benefit without them being taxed or becoming liable for additional national insurance contributions.
There’s nothing new as such about trivial benefits and many employers have been providing this kind of benefit to employees in the form of free coffee and tea at work as well as the occasional gift, such as a turkey at Christmas, a meal out for everyone, or a present to celebrate a member of staff’s birthday.
What’s changed is that under the new rules, you can afford to spend a bit more on your staff, as well as yourself, without being taxed. As always with HMRC, there are certain rules and exemptions and it’s important to note that trivial benefits are not the same as benefits-in-kind which includes the likes of a company car, private medical care, private nursery fees, and gym membership. Benefits in kind are always taxable.
The new rules on trivial benefits
The benefit will be exempted from tax and NI if:
- The cost of the benefit is not more than £50, including VAT. If you take a group of employees out for a meal and can’t work out the exact amount spent per employee the cost can be averaged out at £50 per head.
- The benefit can’t be in cash or a cash voucher. Gift vouchers up to £50 are fine, provided the voucher can’t be exchanged for cash.
- You do not make the benefit part of the employee’s contract of employment.
- The benefit isn’t provided in lieu of payment or as a reward for services performed as part of the employee’s duties.
- The benefit awarded to directors of a close company (see below) does not exceed £300 in a given tax year.
Don’t exceed the limit
If you do exceed the £50 limit on a trivial benefit, even by a small amount, the total value of the benefit – and not only the excess – will have to be taxed through the payroll. Trivial benefits can’t be lumped together and claimed as an annual allowance for corporation tax relief and will only be considered where you have a receipt for each individual benefit.
Remember, if you provide a trivial benefit in return for work performed by a member of staff the benefit could be taxed as a reward for services. If you do want to hand out the bubbly, just be sure it’s as a token of appreciation for a project completed and not in lieu of payment. That may sound more like a case of semantics than a clear distinction but it’s important to identify a gift as being just that. You can also provide trivial benefits under a ‘salary sacrifice’ arrangement, agreed by the employee, but the benefit will not be exempt from tax and must be reported on a form P11D.
For more information on salary sacrifice arrangements, including new rules, see here.
Rules for close companies
Trivial benefits provided to a director or other office holder of a close company (a limited company that is run by five or fewer shareholders) should not exceed £300 in the same tax year. Receipts should be kept for all trivial benefits.
Trivial benefits can be provided to a family member or a member of your household and claimed for under your director’s annual allowance, again capped at £300.
Some examples of trivial benefits
Spend up to £50 per employee on one of the following:
- A night out at a restaurant to celebrate completing a project
- Throw a garden party for staff and their partners
- A gift of flowers for a birthday, special anniversary, birth of a new baby
- Annual gift for each employee at Christmas or other significant event
If you’re not sure whether the cost qualifies as a trivial benefit, get advice on HMRC’s employer’s helpline.