What Are Trivial Benefits – How Do They Affect Limited Company Directors?
Trivial benefits are best described as small ‘token gifts’, given by management to their employees. This can come in any shape or form but generally speaking, they are typified by gestures such as bottles of wine, chocolates, beer for the office, or team lunches. Essentially little everyday sweeteners that keep the morale of the company up.
Receiving a gift from your employer is a great feeling for employee and employer alike, but in the workplace – and we hate to be party poopers – the employer needs to be aware of whether or not they need to pay tax on the present.
Rules on trivial benefits
HMRC has published guidance allowing employers to provide trivial benefits without reporting them and have some pretty strict rules when it comes to what they define as trivial. You don’t have to pay tax on a gift (or in official terms, a benefit) for your employee if all of 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 their work or performance
- It isn’t in the terms of their contract.
When all criteria are met, the benefit is known as a trivial benefit. There’s no need to inform HMRC, and the trivial benefit won’t count towards taxable income or Class 1 National Insurance contributions. Trivial benefits don’t need to be reported on your annual P11D or P11D(b) forms.
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 aforementioned is on the basis that the benefit per employee does not exceed £50.If the cost of the benefit is over £50, the whole amount is taxable, not just the excess over £50.
The examples given in the HMRC draft guidance are, for the most part, sensible and very helpful.
Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill you should accept that the cost per head is £48, reflecting an average amount of £240/5. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.
Is there a limit on trivial benefits each year?
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 companywith five or fewer participators (shareholders) who are all directors.
This £300 limit is separate to the exemption for annual parties, such as a Christmas party, as mentioned earlier.
HMRC knows what directors can be like, so the legislation imposes an annual cap of £300 on exempt trivial benefits provided to a director or office-holder of a close company (including benefits provided to members of their family or household). Here’s a good example from the HMRC guidance:
An employer gives each member of their 25-strong workforce a bottle of wine as a Christmas present. The total bill comes to £1,000. This is for 20 bottles of wine at £15 per bottle given to each of their employees, and five bottles of wine for the directors that cost £140 per bottle.
The £15 bottles of wine don’t exceed the trivial benefit financial limit, but the £140 bottles of wine for directors do.
Examples of benefits not allowed under ‘trivial benefits’:
- Gifts or incentives based on targets, results or performance
- Taxis when employees work late
- Providing working lunches for employees
- Gifts, incentives or events in relation to employment services e.g. team-building events
Salary sacrifice arrangements
If you provide trivial benefits as part of a salary sacrifice arrangement they won’t be exempt. You’ll need to report on form P11D whichever amount is higher:
- the salary given up
- how much you paid for the trivial benefits
These rules don’t apply to arrangements made before 6 April 2017 – after which the rules will change
Why does there need to be a restriction on employee benefits?
Although it might seem like a gross over-extension of the government’s remit to restrict employee benefits, there are practical reasons for implementing regulations on gifts.
To give an example, imagine that it’s the end of the year and you’re looking to give out bonuses. You know that a cash-bonus will be subject to national insurance and tax, so instead of a “payment”, you offer a car or holiday. If there were no levies placed upon these types of gestures the tax system as we know it would be defunct. Gifts or assets are commodities in themselves and if used as a means of payment must be taxed as such.
You’ll have to declare and pay tax and National Insurance contributions on all other benefits that don’t meet the trivial benefits criteria. These should be declared on the employee’s P11D.
If you provide trivial benefits and require assistance or tax advice, please contact one of our team on +44 01234 712840and they will be happy to assist you.
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