As a limited company director, there may be instances where you wish to treat your employees. And the good news is there may be instances where this will not be treated as a taxable benefit, as long as it meets certain requirements.
If you’re looking for a way to provide tax-free gifts to staff, our guide to trivial benefits outlines all you need to know.
What is a trivial benefit?
A trivial benefit is a tax-free gift which an employer can gift to the employees on an occasional basis. In order to be exempt from tax and National Insurance contributions, the cost must follow a specific set of criteria for directors of close companies.
Can I claim a cost as a trivial benefit?
Unsure whether the cost is allowed? Answer the questions below for reference:
- Is the cost of the benefit greater than £50?
- Is the benefit cash or a cash voucher?
- Is the employee entitled to the benefit as part of a contractual obligation?
- Is the benefit provided as a reward or recognition for achievement?
If the answer to any of the above questions is yes, the benefit will be treated as a taxable benefit.
If the answer to the above questions is no, this means the cost will qualify as a ‘trivial benefit’: in this instance, you don’t need to inform HMRC, the benefit won’t be subject to tax and National Insurance contributions and won’t need to be declared on a P11D form.
What is a close company?
A close company is one with five or fewer ‘participators’ or a company which all participators also act as directors. A participator is any party who has a financial obligation in the limited company.
Is there a limit on trivial benefits?
If you are the director of a close company you can still receive trivial benefits. However, they are capped to £300 per director per year.
What counts as a trivial benefit?
The following examples can be counted as a trivial benefit and therefore will not be liable for tax:
- The benefit costs £50 or less
- The benefit isn’t cash or a cash voucher
- The benefit isn’t a reward for performance
- The benefit isn’t an ongoing cost or reward such as a membership
- The benefit isn’t outlined in the worker’s contract
What can’t be claimed as a trivial benefit?
If any of the conditions are appropriate, the benefit will not qualify:
- The benefit is cash or a cash voucher.
- The employee is not entitled to the benefit as a contractual obligation.
- If employers gift a voucher, such as for a restaurant or retail outlet, and it can be exchanged for cash, it will not qualify. In this case, it would be regarded as a cash bonus, which is not tax-free.