It may sound too good to be true but ‘trivial benefits’ can provide a completely tax and deduction-free benefit for directors and employees.
Don’t be fooled by their technical name; ‘trivial’ benefits, are far from trivial. Indeed, they allow you to provide a benefit to an employee with no tax, no National Insurance, and no requirement to notify HMRC. Thus making trivial benefits a very worthwhile add-on to remuneration.
There’s no limit on the number you can provide in a year but restrictions do apply for company directors and family members. A further advantage is that employers can claim Income or Corporation Tax relief on the costs involved. Be mindful, however, that strict criteria do apply to this type of benefit.
Trivial benefits – the critical small print
To be eligible, a benefit must meet the following conditions:
- It must not cost more than £50 (including VAT) to provide.
- It must not be cash or a voucher that can be redeemed for cash. Non-cash vouchers, like store cards, pass the test, though.
- It must not be a reward for particular services carried out by the worker.
- It should not be in the terms of the worker’s contract.
- It cannot form part of a salary sacrifice arrangement.
It is essential that you do not make the benefit a reward for services – if it appears this is the case, the benefit will not meet the rules. For example, don’t give a bottle of wine because someone made a great contribution; instead, make it a morale booster on a grey day.
Some businesses made good use of trivial benefits to enhance staff wellbeing during Covid-19.
What constitutes a contractual element can be open to question. HMRC’s stance is that a benefit provided on repeated occasions could become a legitimate employee expectation. This could be regarded as a contractual arrangement and would therefore not qualify as a trivial benefit.
Getting it right for company directors
There’s a £300 limit to the amount of trivial benefits directors or office holders of ‘close’ companies* can receive over the tax year. The limit includes benefits given to family members who are not directors or employees of the company. Where other family members are also directors, they have their own individual £300 limit.
How we can help
Trivial benefits were very much on HMRC’s radar a year or so ago. Currently, professional opinion is that HMRC’s take on the rules could be unnecessarily restrictive. If you intend to take advantage of trivial benefits, please contact your RfM advisor for guidance.
*limited companies run by five or fewer shareholders.