What are ‘trivial benefits’ and how are they treated for tax purposes?

Since the introduction of new rules in April 2016, employers can provide so-called ‘trivial benefits’ to employees without having to declare them to HMRC.

But what exactly are trivial benefits and is there a limit to how much they can cost before being considered a taxable benefit?

Trivial benefits aren’t new; employers have always been able to provide this type of benefit to staff.

Examples include providing tea, coffee, and bottled water in the workplace and occasional gifts, such as a box of chocolates or flowers on their birthday, or a turkey to take home at Christmas.

As the name suggests, the benefit is something small and is not to be confused with benefits in kind. These are more substantive and can include a company car, gym membership, etc., which are taxable benefits.

That said, the rule change on trivial benefits means directors can afford to be a bit more generous towards staff and themselves.

As always with HMRC, some rules must be followed to avoid being hit for tax or national insurance.

Trivial Benefit rules

The rules on trivial benefits are as follows:

• The value of the benefit must not be more than £50. This includes VAT.
• You can’t provide the benefit as a cash payment. Gift vouchers for that amount are allowed as long as they are not exchangeable for cash.
• The benefit must not be included in the terms of the employee’s contract.
• The benefit must not be in place of payment or a reward for work done (see below) or part of a salary sacrifice agreed upon with the employee.
• For directors or office holders of a close company (see below), the total value of trivial benefits must not exceed £300 in any tax year.

Important: If the £50 limit on trivial benefits is exceeded, then the entire value of the benefit, not just the amount over £50, is considered a taxable benefit.

Additionally, you can’t simply claim trivial benefits as an annual allowance. You must have receipts or evidence of the cost of each trivial benefit before you can claim Corporation Tax relief.

Work rewards vs. trivial benefits

You can’t provide a trivial benefit as a reward for work. This means you cannot give an employee a £50 bottle of malt whisky as payment for a job well done. The benefit will be taxable under the rewards for services rule.

Instead, the whisky must be a genuine token of appreciation or a perk, along the same lines as treating staff to a meal.

Rules for company directors

For directors and/or office holders of a close company (a limited company run by five or fewer shareholders), HMRC has set an annual cap of £300 for trivial benefits.

As a director, you can also provide trivial benefits to a family member or members of your household and claim for these as part of your director’s allowance for the tax year. Please note that all the other conditions listed above also apply to directors.

Trivial benefits are separate from the ‘annual event’ or staff entertaining exemption you can claim as a limited company. The limit is currently set at £150 per head and includes food and drink, accommodation, and transport costs.

This annual event exemption is only available for events open to all employees (or all directors, if there are no employees).

Trivial in name only

As long as the cost of a gift does not exceed £50 and you play by the rules, trivial benefits can be great for boosting morale in the workplace, won’t cost a fortune, and can be claimed as corporation tax relief.

The amount may be relatively trivial, but in terms of showing your appreciation, a little can go a long way in this case.

Visit Gov.UK for further information on trivial benefits.

Visit our guide to claiming expenses via your limited company.