Trivial benefits are best described as small ‘token gifts’, given by management to their employees.
Each tax year, directors can spend up to £300 in trivial benefits from the company account. This is tax free and constitutes a business expense and means that corporation tax is reduced, saving you personal tax that you would have otherwise paid to draw out the funds.
What are trivial benefits?
A trivial benefit is a tax-free gift that an employer can give employees. From April 2016, legislation was introduced providing clarity as to what small benefits are deemed to be trivial and therefore exempt from tax and reporting obligations.
A benefit can be ‘trivial’ if it meets all the following conditions:
- Costs £50 or less to provide
- It isn’t cash or a voucher
- It isn’t a reward for work or performance
- It isn’t in the terms of an employee’s contract
Examples of trivial benefits
Per HMRC’s guidance, some types of examples of trivial benefits are:
- taking a group of employees out for a meal to celebrate a birthday;
- buying each employee a Christmas present or birthday present;
- flowers on the birth of a new baby;
- a summer garden party for employees.
The above is conditional on the basis that the benefit per employee does not exceed £50. The key distinction of this type of benefit is that it is not intended to add financial value to an employee’s pay-check, and cannot be given in lieu of payment.
Is there a limit to trivial benefits?
Directors of “close” companies can’t receive trivial benefits worth more than £300 in total during a tax year (and no more than £50 for each individual benefit).
A “close” company is a limited company with five or fewer participators (shareholders) who are all directors. For most small limited companies, ‘participators’ will just mean shareholders.
This £300 limit is separate to the exemption for annual parties, such as a Christmas party, as mentioned earlier.
Advantages to Trivial Benefits
Offering your teams this type of benefit has many advantages, including:
- A generous allowance: Benefits can total up to £300 per year.
- A way to incentivise staff: Providing a prosperous workplace culture.
- No tax or NI payments: Trivial benefits are so small that they are exempt.
- No notification to HMRC: This cuts down administration time.
- No inclusion in employee contracts: trivial benefits can be given at the discretion of the business owners.
If you require any assistance or tax advice, please contact one of our team here and they will be happy to help you in any way we can.