The tax and NI exemption for “trivial benefits” has been around for more than three years. Despite this, it’s often overlooked as a tax-efficient way of treating your employees or yourself.
What is a trivial benefit?
It’s a gift made by your business to your employee, which is tax-free if the following conditions apply:
- it costs you £50 or less;
- it isn’t a gift of cash or a voucher which can be converted into cash;
- it’s not a reward for your employee doing their job.
If all the above conditions are met, the gift is a tax-free benefit in that you as an employer and the employee have no tax or NI to pay and you don’t have to put it on a P11D. The employer can also claim income tax or corporation relief on the cost.
Examples of trivial benefits
Examples of gifts which usually qualify are:
- taking out a group of employees for a meal to celebrate a birthday;
- buying an employee a Christmas present; and
- a gift to celebrate an engagement or wedding.
It’s important to note that the tax exemption is an all nothing benefit in that if the cost of the gift exceeds £50, the whole amount is a taxable benefit in kind, not just the excess over £50.
Types of gifts which will not qualify as trivial benefits include:
- providing a working lunch to employees (due to the fact that this is provided as part of their work);
- gifts provided to incentivise achievement of job targets; and
- taxis when employees stay late.
There is no limit on the number of trivial benefits that an employer can provide to employees. But by their nature trivial benefits are meant to be non-work related and irregular or infrequent. If you’re buying an employee a bottle of champagne every week, it’s not going to be classed as a trivial benefit as it’s likely to fall foul of reward for work rule.
Directors – can they have trivial benefits?
The answer is “Yes, but …”
HMRC know what some directors are like and so they have imposed an annual cap of £300 on exempt trivial benefits provided to directors of “close” companies and members of their family. The rules on how gifts to family members of director shareholders work can get complicated, and depend on individual circumstances.
A “close” company is a limited company with 5 or fewer shareholders who are also directors, which usually covers most small owner-managed companies.
Gift cards – an easy way of taking advantage of the exemption
If you are a director, a practical way of taking advantage of this tax-free perk is using the company credit card to buy 6 gift cards with £50 on each of them over the year.
Buy each one on a different day. You can buy them from the same or different stores (on-line and high street). You can then spend them individually at the time or save them to spend all at once.
Remember that the exemption is available to every director, so if your spouse or children are directors, they also get their own £300 exemption.
This might not seem much but over ten years it can save you and you company £1,800 in tax and NI for each director. Why would you not take advantage of such a tax perk, however modest?
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Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Whyatt Accountancy and the writer accept no responsibility for any loss arising from any action taken or not taken by anyone using this material.