What are trivial benefits?
Posted on 20th August 2020
In 2016, HMRC introduced new legislation that enables employers to give tax-exempt gift and entertainment to their staff members i.e. trivial benefits, yet so many business owners in the UK are failing to take advantage of these tax breaks!
Since the 6th of April, 2016, a business is able to provide its directors and employees (but not shareholders) with trivial benefits, as long as they amount to £50 or less each time. These trivial benefits can be given without any National Insurance or tax implications.
Something can be counted as a trivial benefit as long as the benefit amounts to £50 or less, it is not in the terms of the employee’s contract, it is not a reward for their performance or work and it is not cash or a cash voucher. With trivial benefits, you don’t have to pay National Insurance or tax and you don't actually have to report the benefit to HMRC.
Per HMRC's guidance, some types of examples of trivial benefits are taking a group of employees out for a meal to celebrate a birthday, buying each employee a Christmas present or birthday present, flowers on the birth of a new baby or a summer garden party for employees.
In addition to this, directors of a limited company or a member of their household or family can also receive trivial benefits. However, there is a yearly limit of £300 on the number of benefits that can be received.
There is no limit on the quantity of ‘benefits’ you can provide, so long as they do not exceed £300 per year or £50 at one time. For example, this means you could make 30 claims of £10 or you could make six claims of £50. If any ‘benefit’ exceeds £300 for the year or £50 per benefit, they will no longer be deemed allowable via the business.
There are certain things that cannot be claimed for, and so it is important to make this clear so that you get a better understanding. So, let’s take a look at the things you cannot claim for:
1. The ‘benefits’ are not allowed to be regular payment, for example a gym membership or a subscription service of any kind.
2. The ‘benefits’ cannot be provided in recognition of specific services that an employee has performed or as part of their employment duties.
3. The employee should not be able to get any benefits as part of their contractual arrangement. This includes any type of salary sacrifice arrangement that you have in place with your employees.
4. The ‘benefit’ cannot be provided in the form of cash vouchers or cash. Cash vouchers refer to vouchers that can be exchanged for money. Therefore, shop vouchers would be allowed, so long as the person would not be able to exchange the voucher for money. We always advise that business expenses are paid for directly from the company - and in this case, it would not be possible to reimburse yourself for trivial benefits as that would be seen as a cash payment.
5. The £300 annual amount and the £50 benefit cap represent limits, not allowances. This means that you should hold receipts to back-up your claims should you need to. You also need to ensure that the cost has actually been incurred. You cannot simply claim for the full amount at the end of the year; it must have already been spent. Furthermore, it is important to be careful not to spend over £50 per benefit, otherwise, you would end up with the entire benefit being classed as a benefit. For example, let’s say you spend £52 on a benefit for an employee, the entire £52 would become taxable. You would not simply pay the tax on the eccess, i.e. the £2.
If the benefit costs more than £50, the whole amount will be taxable as a P11D benefit.
Trivial benefits - and taxes in general! - can confuse a lot of business owners. It ends up with many of them having to pay more tax than they need to and really does highlight the importance of having an accountant who can help with this. If you're not sure about what you can claim tax back on, feel free to get in touch with us today!
Nicola J Sorrell -
Founder | Xero Champion | IR35 Expert
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