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Trivial benefits aren’t necessarily trivial
As the deadline for Benefit in Kind returns is once more upon us, here’s a useful reminder of what trivial benefits are and what they include.
Trivial benefits cover gifts made to employees which are deemed small enough that as an employer you don’t have to report them to HMRC and pay tax on the present. Unsurprisingly HMRC applies strict rules as to what gifts can be defined as trivial, but considering that tax-free benefits from employment are few and far between, any opportunity to receive these benefits should be welcomed!
It’s worth noting too that the income tax exemption for trivial benefits doesn’t just apply to benefits provided to the employee. It can also apply to a member of the employee’s family or household, and also applies when the benefit is provided on the employer’s behalf by a third party. And if you’re providing the benefit to a group of employees, the total cost can be divided up to get an average cost per employee, which still qualifies as a trivial benefit if it’s under £50 each.
The other good thing is that trivial benefits don’t count towards Class 1 National Insurance contributions. Nor do they need to be reported on employees’ annual P11D or P11D(b) forms.
What counts as a trivial benefit?
You don’t have to pay tax on a gift to an employee if the following conditions are met:
It’s not given as cash, or as a cash voucher. (Non-cash gift vouchers are acceptable).
It doesn’t cost you more than £50 to give the benefit
It’s not part of a salary sacrifice arrangement or any other clause agreed in your employee’s contract
It’s not given as a reward for services performed as part of your employee’s duties
Some examples of the kind of things that could be classed as a trivial benefit are:
Buying your employees a Christmas present
Taking them out for a birthday dinner
Giving an employee flowers on the birth of a new baby
Throwing a summer party for staff
Be aware of those benefits that might seem to qualify as trivial but are in fact exempt, due to their relation to employment. This would include taking employees out for a working lunch, taking them on a team-building event, paying for taxis when they’re working late or buying drinks for exceeding monthly sales targets.
Gifts below £50 in one tax year
It’s worth noting that the limit on trivial benefits is £50 per gift, not £50 per tax year as some might think. So, as an example, within one tax year as an employer you can give your employee a £25 bottle of wine for Christmas, a birthday present costing £30 and a wedding present which costs £45. All three of these gifts count as trivial benefits and no tax is due on them.
However, be warned – if the total cost of providing the benefit is more than £50 per employee, then the whole amount is taxable, not just the excess over £50.
Benefits to directors
If the benefit is provided to someone who is a director or other office holder of a ‘close’ company, this individual has a limit of no more than £300 of trivial benefits in any one tax year. A ‘close’ company is a limited company with five or fewer participators (shareholders) who are all directors.
So, say a close company provides one of its directors with various benefits which cost less than £50 each, but which amount to £280 in total. Later in that same tax year this same director receives an additional benefit, which costs £40. This final benefit is not within the annual exemption as it totals £320 which exceeds the £300 cap.
If you have any queries about trivial benefits, and what is and is not exempt, please contact us and we’ll be happy to help.