What are Trivial Benefits?
Trivial benefits refer to small perks or gifts given to employees that have a value of £50 or less (including VAT). They are often given as gestures of goodwill.
Trivial Benefits Definition
In compliance with UK taxation laws, trivial benefits are granted to employees or directors as small gifts with little worth. As long as these gifts comply with the specific requirements set forth by the government and cost less than £50 per person, they do not need to be taxed for income or national insurance contributions. Such benefits can be a terrific way for companies to show appreciation and enhance employee morale without incurring additional taxes.
Trivial Benefit Rules
HMRC has established certain stringent trivial benefit rules. An employee gift or benefit can be exempt from tax if it meets the following conditions:
1. The cost of providing the benefit is £50 or less.
2. The benefit is not in the form of cash or a cash voucher.
3. The benefit is not a reward for work or performance.
4. The benefit is not specified in the employee's contract.
When all these criteria are met, the benefit is classified as trivial. You are not required to inform HMRC about it; the trivial benefit does not contribute to taxable income or Class 1 National Insurance contributions. Moreover, trivial benefits do not need to be reported on the annual P11D or P11D(b) forms.
Trivial Benefits Examples
Directors of limited companies have a range of options when it comes to trivial benefits. Here are some examples of allowable trivial benefits:
1. Treating employees to a meal to celebrate a birthday.
2. Providing Christmas presents for each employee.
3. Offering flowers to celebrate the birth of a new baby.
4. Buying a gift card for an anniversary.
If the benefit cost exceeds £50, the entire amount becomes taxable, not just the portion exceeding £50. In cases where the individual cost cannot be accurately estimated due to a group event, calculating the average cost per employee is acceptable.
Notably, specific rules apply to regular events like summer or Christmas parties for employees, including limited company directors (excluding sole traders). For such annual events, you might be eligible to claim up to £150 per employee and potentially include a plus one for each employee. For complete details, please refer to our articles.
Non-qualifying Trivial Benefits
Certain benefits are not eligible for the trivial benefit exemption. These include:
1. Providing a working lunch for employees (as it relates to their employment).
2. Gifts, incentives, or events tied to performance targets or results.
3. Gifts, incentives, or events related to employment services, such as team-building events.
4. Taxis for employees working late.
The trivial benefits exemption allows employers to disregard benefits in kind costing £50 or less for tax purposes without the need to report them to HMRC. However, it is important to meet the conditions of the exemption.
Benefits must not be given as rewards for services, and only non-cash items qualify. Additionally, salary sacrifice schemes invalidate the exemption. Company directors have an annual limit of £300 for tax-free trivial benefits, while other employees don't face such restrictions.
An issue highlighted by HMRC concerns the use of gift cards to provide trivial benefits. Instead of assessing each top-up individually, HMRC considers the total amount loaded onto the gift card during the tax year. If this amount exceeds £50, the trivial benefits exemption no longer applies.
To avoid this problem, employers should refrain from topping up gift cards. Providing separate gift cards each month, with a different nature for each benefit, helps establish that each benefit is independent and falls within the exemption.
HMRC Trivial Benefits Examples
Let's have a look at examples of trivial benefits explained by HMRC:
Example A - Allowable Trivial Benefit - Christmas Present
An employer gifts each employee a bottle of wine worth £25 as a Christmas present. However, some staff members don't drink, so they receive a £25 supermarket gift voucher instead, allowing them to choose an alternative. The exemption can cover both the bottle of wine and the non-cash gift voucher.
Example B - Non-qualifying Trivial Benefit - Christmas Present
An employer gives each of their 25 employees a bottle of wine as a present in a Christmas party, resulting in a total bill of £1,000. This includes 20 bottles of wine priced at £15 per bottle for employees and five bottles priced at £140 per bottle for the directors.
While the £15 bottles of wine do not exceed the financial limit for trivial benefits, the £140 bottles for directors do.
Limits on Trivial Benefits per Tax Year
Directors of "close" companies are subject to a maximum of £300 worth of trivial benefits throughout a tax year (with no more than £50 for each individual benefit). A close company refers to a limited company or a small business with five or fewer shareholders who are all directors. To comply with tax regulations, it's crucial to maintain accurate records of the costs incurred.
As mentioned earlier, this £300 limit is separate from the exemption for annual parties, such as Christmas parties.
Understanding Salary Sacrifice Arrangements
Providing non-cash employee benefits like trivial benefits through salary sacrifice arrangements can benefit both employers and employees. The arrangement involves giving up a part of an employee's salary in exchange for tax-free perks.
Suppose any trivial benefits are provided to employees or limited company directors as part of a salary sacrifice arrangement. In that case, they will not be eligible for exemption. In such cases, you must pay income tax and National Insurance contributions on these benefits and report them on the employees' P11D forms. The amount to declare should be higher than the salary given up or the actual cost of the trivial benefits.
It's important to note that these rules do not apply to arrangements made before April 6, 2017. For more detailed information about salary sacrifice and its impact on PAYE, you can visit the Gov.uk website.
All benefits that do not meet the criteria for trivial benefits must be declared, and taxes and National Insurance contributions must be paid on them. These benefits should be reported on the employee's P11D form.
Need Help with Directors Trivial Benefits?
If you need assistance with trivial benefits, seek guidance from a certified limited company accountant to navigate the rules and regulations. Trivial benefits can include small tokens of appreciation for employees or directors. Keep detailed records and receipts of any given benefits. Using trivial benefits can result in tax savings for your limited company.
Frequently Asked Questions on Trivial Benefits
1. Can you claim VAT on trivial benefits?
Employers can give non-cash rewards known as trivial benefits to their employees without incurring taxes, provided the value of the gift or reward is under £50 and not part of a contractual obligation. These can include small presents, seasonal gifts, or flowers on special occasions. Both employers and employees can benefit from this tax exemption.
2. Can limited companies provide trivial benefits to their employees?
Yes, limited companies can provide trivial benefits to their employees, including directors and their family members.
3. Can trivial benefits be provided in the form of gift cards?
Yes, trivial benefits can be provided in the form of gift cards or vouchers as long as they meet the criteria for trivial benefits.
4. How can limited companies ensure compliance with trivial benefit rules?
It is important for limited companies to keep accurate records of the trivial benefits provided and their values. This documentation will help ensure compliance and provide necessary information for tax reporting purposes.