There are certain conditions to meet when you claim for Trivial Benefits as business expenses. Please note, there are two good aspects when you claim for these through your company:
you receive the benefit of the allowance on a personal basis; and
your business saves tax on this at the same time.
Trivial benefits are a recent entry into the UK tax system. They were first brought in on 6 April 2016. Indeed, Trivial Benefits cover the scenario where a business makes rewards to its directors and staff. The allowance is tax-free, and I would advise that you claim for this, if you qualify. What’s more, it is also an excellent way to reward directors and employees throughout the year.
Most importantly, this expense is not well known. Lots who can claim overlook to do this. Many contractors, due to a lack of awareness, do not even know that this allowance exists.
HM Revenue & Customs’ (HMRC) guidance
HMRC state that a business can provide trivial benefits to an officer of a `close’ company. An `officer’ means a director or secretary. The term `close’ company means companies that have five or fewer shareholders. In real life, most contractor companies will have nowhere near five shareholders. Therefore, most will qualify for this tax-deductible allowance.
There is some further official guidance from HMRC. This guidance states that if the total provided does not exceed £300 over the tax year, it is tax-deductible. Also, you need to retain invoices or receipts for all Trivial Benefits that you claim during the tax year.
To be exempt from tax and NI, the Trivial Benefit will need to meet the following four conditions:
The cost of the trivial benefit is no more than £50 in total inclusive of VAT
It is not cash or a cash voucher that you can exchange for cash
The payment is not a reward for any work or performance
The amount is not part of any work type of duty
There is nothing new about an employer that provides its staff with benefits such as a gift at Christmas. Employers sometimes provide a free meal to celebrate a member of the staff’s birthday or another special event. Some employers also provide free tea and coffee for their employees while they are at work.
What to bear in mind
Under the rules, you can afford to spend a bit more on yourself and your staff without having to pay tax on this.
Gift vouchers up to £50 are ok to claim, providing that you cannot exchange the voucher for cash.
Please note, you need to make sure that you do not go over the limit. If you do go over this, even by a small amount, the total cost will be taxable through the employer’s payroll.
It is also crucial to note that trivial benefits are not the same as benefits in kind (BIK). BIK applies when your employer provides you with some form of benefit. The BIK could be a company car, motorbike or van. It could also be medical insurance, dental cover, a director’s loan, or other benefits.
Please also remember, if you would like to make a payment of a trivial benefit, it is not in place of any work payment.
What’s more, the £300 limit mentioned above applies to an officer of a `close’ company. Where a business provides a benefit to the director’s family member or household, we need to treat this as being provided to the officeholder. This is then part of their annual exemption.
You should adhere to the limits and exemptions. If you do, the employer will receive a Corporation Tax (CT) deduction on the cost of the Trivial Benefits.
How you can claim for these as a UK contractor
If you work as a contractor through your own UK business, this is one allowance that you should claim. You can claim for this each year as long as you follow the above guidelines. Please make sure that it is not cash or a cash voucher (a cash voucher is a voucher that you can exchange for cash).
Also, please make sure that it is not more than £50 each time. The annual allowance is £300 per director. Therefore, you can claim for the £50 up to six times a year, each year. The amount will save CT at 19%. You also receive the benefit of what items that you spend this on. Please also make sure that you obtain the receipts each time that your business pays for a Trivial Benefit.
Even now, three years on from the intro of this tax-free expense, many are not aware of it. It is not well known, and as a result, many business owners that can claim this do not do so. There is no definitive list that covers what your trivial benefit can cover. Therefore, as long as you bear in mind the exemptions above, it can be for any cost.
Therefore, if you are a contractor who runs your own UK company (with five or fewer shareholders), please think about claiming for this in the future.
If you have your own business, can you claim for the annual Christmas party as a genuine business expense? Many contractors ask me what they can claim for this. Well, if you are running your own UK company, you may feel that the tax system does you very few favours. Thankfully, HM Revenue & Customs (HMRC) are not a complete scrooge. It is good to know that during the tax year, they do give business owners certain financial incentives. In fact, nowadays, this annual allowance is now known as the `Annual Event’.
Other tax tips
Have a read of my article coveringtax tips for contractorsfor handy tips you should know when you have your own business (this is a member only article and you can read it if yousign up as a member). This includes my latest advice for best tax planning ideas.
The Annual event
Claiming for the Annual event
The annual event is a good incentive that is claimed by companies each year (but not sole traders). This claim is an event or a series of events that you can enjoy throughout the year.
To clarify, this is an exemption, rather than an allowance. Furthermore, this is worth your while to claim, even though this is only a small amount.
The exemption itself
When you hold your ‘Christmas party,’ there’s no exemption from tax as such. However, when a business holds an annual event, HMRC does give limited tax relief, and this is on the basis that you can meet certain conditions.
The cost of the annual event is less than £150 per person during the tax year.
Also, the claim is for an event or events. This outing can include your Christmas party.
The annual event is available to all of your employees.
The exemption does not apply to company shareholders if they are not a director or employee.
The director or employee that attends can also bring a guest if they are a partner or a family member.
A claim for the annual event
As a company director, you can claim for the annual event or events. You can hold this for yourself, your partner, and any of your employees.
The cost of the event is tax-deductible, on the basis that the amount that you claim over the tax year does not come to more than £150 per person.
Further to this, the event or events are open to all of the company employees to attend.
Please note, though, you do have to hold the event or events to make this claim. You cannot simply claim a fixed sum of £150 cash if you do not spend any money.
Can I reclaim the VAT on the annual event?
Please be aware, the guidance from HMRC VAT Notice 700/65 states the position on VAT. You are not able to reclaim the VAT element on your annual event or Christmas party expenses if only the directors and their partners attend the event. The reason for this is because the goods or services are not for a business purpose.
On the other hand, you can reclaim the input VAT if the directors and partners attend a staff party, alongside other employees. HMRC’s guidance here is, `we accept that the tax is input tax and we do not block it from recovery.’
When you hold an annual event, as is the case with all other business expenses that you incur, make sure you obtain a receipt.
My VAT guide gives a more in-depth view on VAT. for contractors and small business owners.
I am sure you will agree with me, these types of events are key to motivate your staff. Also, this is an excellent way to improve your staff’s morale.
Your annual event or Christmas party is an excellent way for you to let your hair down. Indeed, this will come after the daily stresses of work. An `annual event’ can be an excellent meal in a restaurant of your choice. It can also be a day out at the races. It might also involve a trip to see a good artist in concert or a good old knees-up in your local. Most important, If one of your annual events is the Christmas party, please make sure that you enjoy yourself and do not embarrass your fellow work colleagues!
As a final thought, please take note the total cost of your annual events cannot exceed £150 per director or employee.
You might also make a saving via your self-assessment tax return if you have invested into an Enterprise Investment Scheme during the tax year.
As mentioned, many people miss out on the claim. The reason for this is simply due to a lack of awareness on the subject. Your contractor accountant will be able to help check this for you.
In previous times, the Marriage Allowance was brought in by the Coalition Government. Today, both married couples and civil partners can claim this.
How the UK Marriage Allowance Transfer works
This UK Marriage Allowance Transfer allows couples to transfer part of their Personal Allowance (PA). The transfer is 10% of one partner’s PA to the higher-earning partner’s PA. In 2021/22, the PA is £12,570. Therefore, one partner can transfer £1,250 of their PA to their partner. In turn, this will result in an income tax saving of £250 for the higher earner.
Being entitled to claim depends on the income of both of the people in the marriage. People in civil partnerships can also claim.
When can you transfer the UK Marriage Allowance?
When one of the partners has an income of £12,570 or less, you can transfer the allowance. Please note, the other partner should not be a higher or additional tax ratepayer. By this, I mean they are not earning over £50,270 during 2021/22.
Therefore, to be eligible, one partner must be a non-taxpayer. The other one needs to be a basic rate taxpayer.
If you claim for this, the non-taxpayer will transfer precisely 10% of the prevailing PA for the tax year in question.
There may be instances where the non-taxpayer has already used up some of their tax allowances. The 10% transfer then results in some tax becoming payable.
You can apply online
You can apply for the UK Marriage Allowance online via the HMRC website. When you apply, you will need both yours and your partner’s NI numbers. What’s more, you apply via the person’s account who is transferring part of their marriage allowance to their partner. You will also need proof of ID. This ID includes your passport, payslip details, and tax credits. Finally, you will also need the bank account where you receive child benefit, etc.
If your application is accepted HMRC, they will issue updated tax codes. These will show the transfer of the Marriage Allowance from one partner to the other. HMRC will also update the change to the start of the current tax year.
Many couples overlook to check if they claim for this. Although this is not a significant amount, it is worth a claim for if you qualify. If you are not sure how to go about this after reading the above, please speak to your accountant.
If you have had several employments previously in your working life, and you have pension schemes dotted around from these jobs, something that you may be interested in is pension consolidation.
Relevant Life Insurance policies provide life cover to the dependants of the policyholder, with funds paid via a discretionary trust. When you look for a Relevant Life cover quote, the premiums are paid for by the contractor’s company, rather than the employee. Therefore, this saves tax for you as the contractor.
You can take out a policy to protect you (the director). What’s more, you can also extend cover to your staff, and this may include your spouse. It is key that you are aware that this is on the basis you receive a salary from your company.
Three other policies that are specifically for contractors and are worth considering are:
Now, back to Relevant Life Insurance. Whether you are a business owner or a contractor, a Relevant Life policy offers very tax-efficient life insurance.
How much can you save with Relevant Life Insurance?
Let us now see how the cost of your contractor life insurance policy shifts when you obtain a Relevant Life cover quote. It moves from your pocket to your company expenses and the taxman.
For example –
Let us assume that you own your own company. You pay £100 a month and choose to pay for Contractor Life Insurance out of your pocket. It will cost your business more than it should. To begin with, if you are a 40% taxpayer, you need to consider you have already paid tax on the £100 in the form of income tax and employer and employee NI contributions. In fact, after 19% Corporation Tax (CT) relief, the net cost to your business works out at £158.93 per month.
Instead, by having a Relevant Life Insurance policy for your contractor life insurance, you do not pay any NI contributions or income tax on the premiums. However, you still receive a 19% CT relief. In turn, this makes the net cost only £81 per month.
That is a huge saving of £77.93 a month. This saving equates to £935.16 over the year.
There are great savings if you obtain a Relevant Life cover quote and pay through your own company
Not only does a Relevant Life Insurance policy offer great savings and special advantages to directors of small businesses and contractors looking for contractor life insurance cover, but it makes sure that your family is protected when you are no longer around.
While the life cover is personal to you, the policy counts as a genuine business expense. Therefore, it is tax-deductible. Let us now learn more about a Relevant Life Policy’s benefits:
You will immediately save tax by the business paying the contractor life insurance cover premium.
HMRC will not treat it as a benefit in kind; you will not need to report the premium as a P11D benefit.
Premiums are not subject to NI payments for the employer or employee.
Your business can claim CT Tax Relief on the premiums.
The benefit is payable tax-free.
The benefit does not count towards your lifetime allowance for pension purposes.
Relevant Life Insurance ought to be a consideration if you are a contractor and are looking for contractor life insurance. There are great savings if you pay for this through your company.
Therefore, if you would like to request a relevant life cover quote on tax efficient life insurance please make an enquiry with Broadbench. You can book yourself an appointment with one of their expert Contractor protection advisers. Please note, the link above has currently expired and a new one will be replacing this very shortly.
When your work involves you staying away from home overnight, you will incur some personal expenses. These expenses are non-business, but the PIEs allowance allows you to claim to cover these.
Other initial thoughts
The PIEs allowance can often be missed therefore please make sure that you claim for these when you stay away overnight for business. Another expense that is often missed by contractors is called Trivial Benefits.
Have a read of my article coveringtax tips for contractors (this is a member only article and you can read it if you sign up as a member)
What PIES cover and what you can claim
What is covered?
PIEs are an available allowance. The type of costs that these allowances would cover could include:
paying for laundry
The rates that are available
There are fixed allowances available when you claim for Personal Incidental Expenses.
You do not have to report or pay anything to HMRC if you claim no more than:
So, if any of the overnight expenses that you claim are not exempt, you may have to report the costs to HMRC. In turn, you will need to deduct and pay tax and National Insurance on these.
What’s more, for expenses above the £5 or £10 threshold, you must:
report them on form P11D
deduct and pay PAYE tax and Class 1 National Insurance through your payroll. Use the full amount that you pay to your employee, not just the amount above the £5 or £10 threshold
Also, when you claim for PIEs, you do not need to ask for or keep any receipts. Then, you can claim the fixed rate of £5 or £10 per night. You can claim this for each night that you spend away from home for work-related reasons.
You should also note that you cannot claim for PIEs if you fall foul of the two-year rule..
Not all contractors are aware of the PIEs allowance; it seems. It can make a difference, though, especially if you are staying away from home overnight regularly during the year. So, if you are not yet claiming for PIEs and can do so, please do claim in the future.