Have you ever thought about doing something small for your employees? Maybe you already have! Something as simple as bringing a cake to the office for someone’s birthday, taking a new employee out to lunch to check in, or even sending a hamper to everyone at Christmas. These little gestures are often the ones that mean the most to employees, as it shows you genuinely know and care about them as people, not just replaceable job roles. Well, good news! All of those little things are classed as ‘trivial benefits’, which means you could be getting some tax benefits for your generosity.
What is a Trivial Benefit?
The best way to describe trivial benefits is as small, ‘token gifts’ that employers or managers give to employees. Just little things that show appreciation and thanks. There’s no specific definition of what they are, though most common examples include bottles of wine, chocolates, beers for the office or team lunches, but there are specific parameters about what it can’t be. A benefit is considered trivial by HMRC if it:
- Costs £50 or less to provide
- Isn’t cash or a voucher
- Isn’t a reward for work, or for good performance
- Isn’t in the terms of an employee’s contract
Think of them as things that you wouldn’t expect from work, but occasionally find their way into the office. We’ve all seen them in practice, and probably contributed to them ourselves too! A few examples of popular trivial benefits might be:
- A round or two of drinks on a work night out
- Pizza for the office, as long as this isn’t a regular occurrence
- Birthday presents for employees
- A summer party
There are also no limits to the number of trivial benefits you can provide to employees throughout the year! So you can treat your employees with these little extras as often as you would like. And you don’t have to use the whole £50 each time. You could do one ‘treat’ that’s £30 one month, and a £20 the next, and you’re still covered.
The important thing to remember about trivial benefits is that they can’t be used to add value to your employees’ pay checks, or be used in lieu of payment. The word ‘trivial’ is very much being used in the traditional sense of ‘having little to no value’, in monetary terms anyway. If you go outside of those rules, you trip into benefit in kind territory, which is a whole other blog!
Close Companies
If you are the director of a ‘close’ company (which is a limited company with 5 or fewer shareholders), then there is a special rule for you. Here, each director can receive up to £300 worth of trivial benefits per tax year. This includes their family and household members too for each director too, provided they aren’t other directors. That £50 per item limit still applies though, the £300 limit just caps the total trivial benefits each director can get during a year. If you go over it, the excess is tax deductible.
Why Are There Restrictions?
It’s not really surprising that there are restrictions on trivial benefits. They’re designed to stop people from taking bribes, and to make sure employers aren’t finding a way to pay their employees that dodges National Insurance Contributions.
More importantly, there are penalties if HMRC find out that you broke the rules. Oh yes, more tax! If a trivial benefit goes over the £50 limit, then the entire benefit, not just the amount over it, becomes taxable. That means your employees will have to pay income tax and NI contributions on it, the business might need to pay class 1A NI on it, and for the directors of close companies the excess will be taxable if the total trivial benefits exceed £300 per tax year. So it’s important you stay within the £50 cap and keep within the rules.
Trivial Benefits vs Benefits-in-Kind
One thing that tends to trip people up is the difference between trivial benefits and benefits in kind. The main difference is that trivial benefits are fully exempt from tax and NI contributions as long as all of the conditions are met. Other perks, like company cars, medical insurance or gym memberships, are considered benefits-in-kind, which means they’re items or services of value that you provide to employees in addition to their salary. These don’t qualify for tax exemption since they’re often contractual, cash-equivalent or go over the £50 limit. So they have to be reported on a P11D form or through payroll to be taxed properly.
Take this blog as your sign to treat your employees (and yourself if you’re a director) every one in a while, knowing that, if you follow the rules, it’s tax-free! Trivial benefits can feel a little complicated at times, which is why so many business owners don’t take more advantage of it. Trivial benefits are a great way of rewarding your employees and showing them that you care about their wellbeing, as well as building team morale. If you’re ever not sure whether an idea you have will be classed as a trivial benefit or a benefit-in-kind, you can always give me a call. I work with the owners of limited companies to help them understand their numbers, keep their books in order and make sure they’re getting things right. So if you need a hand, just get in touch.