As a limited company director, there may be times when you want to treat your employees (or yourself) to a gift from the business. The good news is that, in some circumstances, the cost of such a gift will not be treated as a taxable benefit.
If you’re looking for a way to provide tax-free gifts to employees or directors, this simple guide to trivial benefits outlines everything you need to know.
What is a trivial benefit?
A trivial benefit is a tax-free gift that an employer can give employees occasionally. To be exempt from tax and National Insurance contributions, the cost must follow specific criteria. Additionally, for directors of close companies there are limits to the amount that can be provided each year.
Trivial benefit rules
So what qualifies as a trivial benefit? First, ask yourself the following questions:
- Is the cost of the benefit greater than £50?
- Is the benefit cash or a cash voucher?
- Is the employee entitled to the benefit as part of a contractual obligation?
- Is the benefit provided as a reward or recognition for achievement?
If the answer to all of the above questions is no, the cost will qualify as a trivial benefit. In this instance, you don’t need to inform HMRC; the benefit won’t be subject to tax and won’t need to be declared on a P11D form.
Tax on trivial benefits
If, however, the answer to any of the above questions is yes, the cost will not qualify as a trivial benefit, meaning it will be taxable. As a result, this will need to be reported to HMRC, you must pay tax on the benefit and the employer must pay employers Class 1A National Insurance contributions.
VAT on trivial benefits
Your business can claim back the VAT on trivial benefits, providing they meet the eligibility criteria.
What counts as a trivial benefit?
The following examples can be counted as trivial benefits and, therefore, will not be liable for tax:
- The benefit costs £50 or less
- The benefit isn’t cash or a cash voucher
- The benefit isn’t a reward for performance
- The benefit isn’t an ongoing cost or reward such as a membership
- The benefit isn’t outlined in the worker’s contract
Trivial benefits examples
If you’re having trouble envisaging exactly what a trivial benefit might be, here are some ideas:
- A gift voucher
- Birthday presents for employees
- Friday night drinks after work
- A team meal
And here are some examples of expenses that do not qualify as trivial benefits:
- Company cars
- Health insurance
- Gym membership
- Childcare
Close companies – trivial benefits for directors
A close company is a business with five or fewer ‘participators’ or a company where all participators also act as directors. A participator is any party with a financial obligation to the limited company.
If you’re the director of a close company – which many limited company contractors are – you can still receive trivial benefits. The cost of these is capped at £300 per director per tax year.
Trivial benefits and salary sacrifice
If you provide trivial benefits to employees (or yourself) under salary sacrifice, your business will not receive tax exemption for them. You’ll be expected to pay tax and National Insurance on these expenses and report whichever amount is higher (between the trivial benefit and the salary sacrifice) on the employee’s (or your own) P11D.
To summarise, then, trivial benefits can be a useful way to treat yourself or your employees to something in a tax-efficient manner. If you have any questions about trivial benefits or to learn more about Caroola’s accounting services, please get in touch.