Tax exemption for ‘trivial benefits’ provided by your limited company

There will be occasions when you may wish to provide small gifts to employees, throw a staff function or even treat yourself as the director.

In this guide, Louisa Drewett from Aardvark Accounting explains what can be claimed and how much, whilst making the most of the exemptions available for trivial benefits.

Trivial benefits – new rules since 2016

Since 6 April 2016, the rules have changed, meaning that employers can now provide trivial benefits such as small gifts and entertainment without having to include these within PAYE settlement agreements or disclose on P11D forms.

Previously, trivial benefits would cover the provision of tea and coffee whilst at work and small seasonal gifts, such as a turkey for Christmas.

The new rules allow some more flexibility however there are some small changes you need to be aware of, to make sure you don’t get stung!

The conditions

The following conditions must be adhered to in order to be able to provide tax-free trivial benefits.

The benefit must not:

• Exceed £50 (this applies to each time you provide a trivial benefit), or the average cost per employee doesn’t exceed £50 for a group benefit where it is impractical to work out the exact cost per individual.
• Be a cash payment (gift vouchers are allowed, providing they can’t be exchanged for cash)
• Be part of any contractual obligation, including salary sacrifice arrangements.
• Pay for services that are performed as part of regular employment duties

Be careful – not to spend one penny more than £50, otherwise the full value of the benefit will be taxable. This is also not a round sum allowance.

You do actually need to incur a cost and claim the receipted amount, so you can’t just claim the full £300 at the end of the year.

See EIM21864 for the full official detail of the trivial benefit exemption measure, and EIM21865 for some examples of scenarios where a trivial benefit would be allowable or non-allowable.

Trivial benefits for directors

If you are a director then you will still be able to receive trivial benefits, as well as providing these to family members.

Please bear in mind the conditions listed above, as these will all still apply.

As a director of a ‘close company’ (one with 5 or fewer shareholders), there is an annual cap of £300.

If you do provide trivial benefits to other family members who are not employees or directors, these will be included as part of your directors’ allowance for the year.

See EIM21870 for full details on how trivial benefits specifically for directors are treated, including several real-life examples.

Examples of what you can do to treat yourself and your employees

Providing it’s not cash, the gift itself could be anything, providing the cost is below £50 per head.

For example; store gift cards, flowers, chocolates, wine, hampers or even taking staff out for a meal.

These trivial benefits are in addition to the annual staff entertaining exemption of up to £150 per annum, per attendee and therefore will help increase morale, whilst reducing your corporation tax liability.

What about salary sacrifice arrangements?

If trivial benefits are provided to employees as part of a salary sacrifice arrangement, they won’t be exempt.

The employer will have to report either the amount of salary given up or the value of the trivial benefits (whichever is higher) on form P11D.

What about where a benefit is provided to a group of employees?

If you (the employer) provides a group benefit to your employees, there may be occasions where it is impractical to calculate the precise value per person. In this case, HMRC says: “In determining whether the average cost method should be applied, you should apply common sense, bearing in mind the circumstances, in deciding whether it is appropriate.”

For example, if you take a group of employees to a restaurant to celebrate several birthdays, and each employee chooses different items from the menu, as long as the total cost of the meal divided by the number of participants doesn’t exceed £50 per head, this should be a perfectly acceptable trivial benefit.

Further Information

Read the official guide to trivial benefits here.