01 February 2017
Making the most of the trivial benefits rules
New rules relating to the tax treatment of providing trivial benefits to employees came into force from April 2016, with most trivial benefits being exempt from tax.
What constitutes a trivial benefit? To qualify as a trivial benefit and be exempt from tax, all of the following conditions must apply:
- The (VAT inclusive) cost of providing the benefit must not exceed £50;
- The benefit must not be cash or a cash voucher (i.e., a voucher exchangeable for cash);
- The employee must not be contractually entitled to the benefit;
- The benefit must not be provided in recognition of particular services performed by the employee as part of their employment duties (i.e., it must be a general gift).
Examples of tax-exempt trivial benefits range from giving each member a staff a turkey at Christmas, to treating the team to lunch, or perhaps giving a particular employee a bunch of flowers or a store voucher on their birthday. Providing the above conditions are all met then this will not be classed as a taxable benefit for the employee and won’t need to be reported on form P11D. The exemption also applies to benefits provided to members of an employee’s family or household.
It is important to note, however, that if the cost of a benefit exceeds £50 (including VAT) it will be taxable in full, rather than just the excess over £50.
What about Directors? The rules also apply to Directors, but where they are Directors of a close company (generally one with 5 or fewer shareholders) then any trivial benefits provided to the Director and any members of their family are subject to an annual cap of £300 per annum.
As a result of the new rules your company could regularly treat you or members of your family to a gift or a store voucher without you having to pay any tax on it. The company should also be able to obtain Corporation Tax relief on the cost. While this isn’t going to set any worlds on fire in terms of tax savings, it does represent a nice tax-free perk for a business owner.
For more advice on this matter, then please contact me.
- Trivial benefits of up to £50 (including VAT) are tax exempt for the employee
- The rules also apply to benefits given to members of the employee’s family/household
- Cash and vouchers exchangeable for cash are excluded from the exemption
- Benefits in recognition of performing particular services (eg. hitting a sales target) are excluded
- The rules also apply to Directors of small companies, but are subject to a cap of £300 pa