What are trivial benefits?

by | May 5, 2022 | Tax

Building a strong relationship with your employees is an important part of running a business, and it’s only natural that from time to time you’ll want to give them a token of your appreciation.

A round of drinks or an end of week pizza can work wonders for morale, but there are some legal pitfalls to watch out for.

In this blog we’ll guide you through the dos and don’ts of gift giving, so you can keep both your employees and the tax man happy.

To declare or not to declare?

The big question when giving a gift is whether or not it is taxable. Until recently, the law around this was quite vague.

It was understood that small or “trivial” benefits wouldn’t be taxed, but this definition was open to interpretation.

This all changed in 2016 when the Government clarified what constituted a trivial benefit. For a gift or perk to be considered trivial, it must meet all four of the following conditions:

  • It must have a cash value of less than £50. This is the market value, not the amount that the employer paid for it.
  • It must not be in the form of cash or a cash voucher. Gift tokens are allowed as long as they can’t be exchanged for cash.
  • It must not be a direct reward for good work, or an incentive to perform a future task.
  • It must not be part of the employee’s contract.

Based on this definition, examples of trivial benefits include:

  • End of week snacks for the break room
  • A round of drinks on a company night out
  • A small birthday or Christmas present
  • A bunch of flowers to celebrate a wedding or a new baby

Trivial benefits do not need to be reported to HMRC, and have no bearing on an employee’s income tax or National Insurance contributions.

If you’re a company director, there’s an additional rule to take note of when it comes to trivial benefits – directors of ‘close’ companies can’t receive trivial benefits worth more than £300 in a tax year.

A close company is defined as a limited company that’s run by 5 or fewer shareholders.

Can I throw a party for my employees?

The short answer is yes: staff parties are exempt from tax and National Insurance, as long as they are thrown to mark an annual occasion, like a Christmas bash.

You can claim up to £150 per employee, and a further £150 for family members or partners attending as plus ones. To qualify, the party must be open to all employees and must be attended mostly by employees.

This exemption only applies to limited companies, not sole traders.

What are benefits in kind?

If a gift or perk doesn’t count as a trivial benefit, it is likely to be a “benefit in kind”. These are more substantial benefits that employees receive in the course of their work, and are treated as a part of their remuneration.

Common examples include:

  • A company car provided for an employee’s personal use
  • Money given to employees to cover childcare costs
  • Contributions to private health insurance
  • Personal travel and entertainment expenses

If you provide benefits in kind, you will need to report them to HMRC. There are two ways to do this:

You can fill in a P11D form as part of your annual tax return. If you have provided benefits in kind to multiple employees, you will also need to complete a P11D(b) form.

You can pay tax on benefits in kind directly through your payroll. To do this, you must register online before the start of the tax year and inform all employees of the change.

Specific help

We don’t want to see you get into trouble for trying to do a nice thing.

If you have any questions about employee benefits, we’re here to help. We won’t even expect a present!

Ready to start the journey?

To get help with your accounts and start freeing up your time to focus on growth, talk to the Mayflower team today.

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