Since the 6th April 2016, employers have been able to provide small gifts and entertainment to employees without having to pay any tax or National Insurance. These are known as ‘trivial benefits’. Employers can even be entitled to Corporation Tax relief, but you need to make sure you adhere to the rules!
Advantages of trivial benefits
Trivial benefits are great for allowing employers to treat their staff on an ad-hoc basis, without having to pay any tax or disclose them on a P11D. Think of them as small tokens of appreciation, which HMRC don’t need you to declare.
You want to treat your employees, but what are the rules on entertaining, and will you have to pay any tax?
What are the rules?
RULE 1: The cost of providing the benefit must not exceed £50 (including VAT) per person
RULE 2: The benefit must not be cash or a cash voucher (you can use non -cash vouchers, like Amazon vouchers, but buy each one separately and no top ups!)
RULE 3. The benefit must not be provided as part of a salary sacrifice scheme or contractual obligation
RULE 4. The benefit must not be provided in recognition of the employee’s service
NOTE: It is all or nothing, you cannot spend £60 on a benefit and pay tax on the £10, if you go over the £50 per person the whole amount will be subject to tax.
NOTE 2: If you are a Director of a close company then you can take advantage of the benefit too, just note that as a Director, you have an annual cap of £300.00 (That's still six lots of £50 worth of trivial benefits :) )
NOTE 3: It can't be for ongoing services, each benefit has to be a one off!
The below examples come straight from HMRC - https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21865
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.
Employer B provides each of its 100 employees with a turkey at Christmas and the total bill comes to £4,500. There are a variety of sizes. Because the employer has made a bulk order, the turkeys have not been priced up individually but would cost in the region of £40 to £60 each. Employees are able to choose which bird they have. Rather than undertake a detailed analysis of the individual benefits, you should accept that the cost per head is £45, reflecting an average amount of £4,500/100. The benefit can be covered by the exemption since the cost for each employee does not exceed the trivial benefit financial limit.
Employer C provides each member of its 25 strong work-force with a bottle of wine at Christmas. The total bill comes to £1,000. This reflects 20 bottles of wine that cost £15 per bottle provided to each of its employees and 5 bottles of wine provided to each of its directors that cost £140 per bottle. In this case it is not impracticable to determine the cost of the individual benefit and the actual cost per item should be applied in determining whether the monetary limit has been exceeded for each employee and director. The benefit of the £15 bottles of wine can be covered by the exemption since the cost does not exceed the trivial benefit financial limit but not the benefit of the £140 bottles of wine provided to the directors.
How many Trivial Benefits can I provide?
For employees; provided they adhere to the rules above, there is currently no limit but remember that the very word trivial means "of little value or importance" so if the benefits became expected or too significant then they would be deemed to breach rule 4.
For Directors of Close Companies: There is an annual cap of £300 (inc Vat)
How does it work in practice?
If you wanted to treat your staff to a pizza day just because it was a Friday and the sun was shining, then provided you adhere to the rules you can do exactly that in a tax efficient manner.
If you wanted to treat your staff to a pizza day because they had hit a target - that is a no go as it breaches rule 4 and the treat would be subject to tax!
You're a Director of a Close company and you want to treat yourself to a box of wine just because you feel like it? Go ahead, just make sure that the box doesn't exceed £50 (Inc vat) and that you don't exceed your annual limit of £300.
It is well worth considering how you could use trivial benefits to the advantage of your company, and FD For You are here to talk if you’d like any further advice.