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.
Get your guide to contractor expenses
We want you to know exactly how our service works and why we need your details. Please read our Privacy Policy before you continue.
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.