For any employee, receiving a gift from your employer can help with morale and motivation. There are allowances made to provide employees with trivial benefits i.e. small gifts, but are you allowed to received these as a director as well?
In this blog, we explain all there is to know about trivial benefits and the HMRC rules around them and whether you qualify for trivial benefits as a director.
What is a trivial benefit?
A trivial benefit could be described as a small gift or in workplaces can be given out as perks. There are pretty strict tax rules from HMRC about trivial benefits. You need to be aware of the rules of what is allowable to be given without the gift or trivial benefit being subject to tax.
A gift is classed as a trivial benefit if the following conditions are met:
- It cost you £50 or less to provide.
- It isn’t cash or a cash voucher.
- It isn’t a reward for work or performance.
- It isn’t in the terms of their contract.
If these conditions are met then you dont need to inform HMRC, as the benefit wont count as taxable income or Class 1 National Insurance contributions. Trivial benefits do not have to be reported on the annual P11D forms.
Remember: If the benefit cost is over £50, then the whole amount is taxable not just the proportion over £50). If you cant accurately work out the individual cost, then you can calculate an average cost per employee.
You can’t claim for trivial benefits as an annual allowance. You must produce receipts for the cost of each trivial benefit in order to can claim income tax or corporation tax relief.
A trivial benefit cant simply be a reward for work. So you cant give a small gift as payment for a job well done or the benefit will be taxable. The gift should be a token of appreciation or a perk.
Trivial benefits exemptions
Some examples of things that could be classed as tax free trivial benefits would be as follows:
- Drinks on a works night out.
- Taking employees out for a meal to celebrate an occasion.
- Flowers, Chocolates or Alcohol to celebrate an occasion.
- A Christmas present.
- A pizza in the office
- A summer party for employees
- Other items such as store gift cards, chocolates, wine, hampers
Benefits provided that wont be allowed as a trivial benefit
Below are just a few examples of the type of benefits not allowed as a trivial benefit exemption:
- Providing a working lunch for employees (as this will be deemed to be related to their employment).
- Any gift or incentive related to performance targets or results.
- Any gift or incentive related to employment services.
- Taxis when employees work late.
- Cash or vouchers that can be exchanged for cash.
Can company directors receive trivial benefits
Directors and/or office holders of a close company (a close company is a limited company run by five or fewer shareholders) can receive trivial benefits.
Ordinary employees can receive trivial benefits of £50 or less once a month provided the conditions are met. For directors of closed companies, the limit is six monthly benefits in a tax year and HMRC has set an annual cap of £300 for trivial benefits for directors.
As a director, you can provide trivial benefits to a family member, household member and claim for these as part of your director’s allowance for the tax year.
Salary sacrifice arrangements
If your provide yourself or employees trivial benefits as part of a salary sacrifice arrangement they won’t be exempt. You will need to pay tax and National Insurance on them and include them on form P11D.
Can you claim VAT on trivial benefits?
When you claim for trivial benefits, you are able to claim VAT on these if:
- It is a VAT inclusive expense; and.
- You have a VAT receipt (a receipt or invoice that shows the supplier’s VAT number).
Staff entertaining allowable expense through the annual function exemption
Many companies provide functions or parties for their staff. Often these can be some sort of annual event, i.e. a Christmas or summer party.
Trivial benefits are in addition to the annual event or staff entertaining allowance, which is currently set at £150 per head and includes the cost of food and drink, accommodation, and transport.
You can read more about annual parties and their tax treatment in our blog here.
Although the legislation includes the term ‘annual’, HMRC dont expect the employer to hold the same event every year.
Trivial benefits can go a long way to boosting staff morale. Just make sure you stick by the rules and meet the conditions above to show your appreciation to employees and family members.
If you want more information about trivial benefits or any other taxable benefit and non taxable benefit advice, then contact our tax team on 03330 886 686 or e-mail us firstname.lastname@example.org.
Any questions? Schedule a call with one of our experts.