Trivial benefits for employees and directors
Good and loyal employees can be difficult to find and retain in a business. Showing appreciation for them and giving them a gift can help to keep an employee happy.
But if you’re too generous, you could end up having to apply tax to a gift and reporting it to HMRC. HMRC have issued legislation to enable employers to provide employees with trivial benefits, which are exempt from tax and reporting obligations.
The good news for directors is that you can treat yourself too, but not too much.
Please read on…
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Employers looking to provide tax-free perks to employees and themselves
What is a trivial benefit?
A small gift or perk. These are the conditions which must be met:
• It costs 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.
Meet these conditions, and the gift is not considered as taxable income for the employee and it does not need to be reported on the annual P11D forms.
Employees (excluding directors) can receive trivial benefits of £50 or less once a month, provided the conditions are met.
The cost of providing the gift is a tax-deductible expense for the employer. You can’t claim trivial benefits as an annual allowance. You must produce receipts for the cost of each trivial benefit for it to be a deductible expense.
Where applicable, VAT on the cost can be reclaimed.
Look out! If the gift costs over £50, then the whole amount is taxable, not just the proportion over £50. If you can't accurately work out the individual cost, then you can calculate an average cost per employee.
The gift cannot be given in recognition of good performance of work.
You cannot provide the gift under a salary sacrifice arrangement.
So how does an employer gift and what can be given?
In practice, an employer would buy something for the employee or spend money on them. You can ask employees what they would want, but the employer has to purchase the item and gift it. You can’t simply ask the employee to pay for it and reimburse.
Here are some examples.
• 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.
• Other items such as store gift cards, chocolates, wine, and hampers.
What does not qualify as a trivial benefit?
• 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.
I’m a director. Can I treat myself?
Yes. Directors of a close company (a limited company run by five or fewer shareholders) can receive trivial benefits.
As mentioned above, ordinary employees can receive trivial benefits of £50 or less once a month. However, 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 or household member and claim for these as part of your director’s allowance for the tax year.
Are staff parties a trivial benefit?
No. Staff entertaining, such as a Christmas or summer party, are an allowable expense through the annual function exemption.
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.
If the employer provides 2 or more annual parties or functions, no charge arises when the cost per employee does not exceed £150 in aggregate.
Please remember that we can all have tax-efficient fun as long as we all stay within the HMRC rules (sarcastic voice)