Receiving a gift from your employer is a great feeling for employee and employer alike, but in the workplace – and we hate to be party poopers – the employer needs to be aware of whether or not they need to pay tax on the present.
HMRC has published guidance allowing employers to provide trivial benefits without reporting them.
What is a trivial benefit?
HMRC have some pretty strict rules when it comes to what they define as trivial. You don’t have to pay tax on a gift (or in official terms, a benefit) for your employee if all of the following conditions are met:
- It cost you £50 or less to provide
- It isn’t cash or a cash voucher
- It isn’t a reward for their work or performance
- It isn’t in the terms of their contract.
When all criteria are met, the benefit is known as a trivial benefit. There’s no need to inform HMRC, and the trivial benefit won’t count towards taxable income or Class 1 National Insurance contributions. Trivial benefits don’t need to be reported on your annual P11D or P11D(b) forms.
Examples of trivial benefits
The type of trivial benefits that are allowed include:
- Taking a group of employees out for a meal to celebrate a birthday
- Buying each employee a Christmas present
- Flowers on the birth of a new baby.
If the cost of the benefit is over £50, the whole amount is taxable, not just the excess over £50. In situations where the individual cost cannot be estimated accurately due to being a group event, calculating the average cost per employee is acceptable.
There are specific rules around regular events like Summer or Christmas parties for employees, this includes limited company directors, but not sole traders. For these annual events, you may be able to claim up to £150 per employee, and possibly even claim for a plus one for each employee. The full details are in our articles.
The type of benefits not allowed as a trivial benefit exemption include:
- Providing a working lunch for employees (because this is related to their employment)
- Gifts, incentives or events related to performance targets or results
- Gifts, incentives or events in relation to employment services e.g. team-building events
- Taxis when employees work late.
HMRC have some good examples to give you some idea of what is and isn’t allowed:
Example A – Benefits allowed as trivial
An employer gifts each of their employees a bottle of wine costing £25 as a Christmas present. However, as some of their staff don’t drink they give them a £25 supermarket gift voucher, which can be used to buy themselves an alternative. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.
Example B – Benefits not allowed
An employer gives each member of their 25-strong workforce a bottle of wine as a Christmas present. The total bill comes to £1,000. This is for 20 bottles of wine at £15 per bottle given to each of their employees, and five bottles of wine for the directors that cost £140 per bottle.
The £15 bottles of wine don’t exceed the trivial benefit financial limit, but the £140 bottles of wine for directors do.
Is there a limit on trivial benefits each year?
Directors of “close” companies can’t receive trivial benefits worth more than £300 in total during a tax year (and no more than £50 for each individual benefit).
A “close” company is a limited company with five or fewer participators (shareholders) who are all directors.
This £300 limit is separate to the exemption for annual parties, such as a Christmas party, as mentioned earlier.
Salary sacrifice arrangements
If any trivial benefits are provided to employees (or to yourself as a limited company director) as part of a salary sacrifice arrangement they won’t be exempt. Instead, you’ll need to pay tax and National Insurance on them and report them on the employees P11D. The amount to declare would be the higher of either:
- the salary given up, or
- how much you paid for the trivial benefits
These rules don’t apply to arrangements made before 6 April 2017. There’s more information about salary sacrifice and the effect on PAYE on the Gov.uk website.
You’ll have to declare and pay tax and National Insurance contributions on all other benefits that don’t meet the trivial benefits criteria. These should be declared on the employee’s P11D.
Need any help?
Visit our limited company online accountancy page for more information on how Crunch can help your small business succeed.
Don’t forget to check out our comprehensive limited company business expenses article, which will take you through all the information you need to record all of your allowable business expenses. We also have a downloadable pdf business expenses guide you can download below if you sign up to our free self-employed community Crunch Chorus.