Introduction
Trivial benefits for directors are an available exemption, from HM Revenue & Customs. However, these are not very well known to many UK contracting professionals and business owners. Due to this, as many do not claim HMRC trivial benefits, directors and UK contractors miss out. This is a great benefit to claim for when you are a UK contractor or small business owner and there is a current limit for trivial benefits £300 per director.
As a UK limited company owner, this is something that you can claim every year as part of your expenses. However, when we make a claim for these, are trivial benefits tax-deductible? The exemption has now been around for a few years. Therefore, if you are a company director of a `close company’ and you meet certain conditions, this allowance will be tax-free for you and your employees. If you are contracting in the UK, it one of your limited company contractor’s benefits to claim for trivial benefits for directors of up to £300 per director per annum.
Initial thoughts
The benefits of director’s trivial benefits (UK)
There are two good aspects for you as a UK contractor and business owner when you pay these:
- You or your employees benefit from the allowance on a personal basis.
- Your business saves tax on this at the same time.
Therefore, what does this exemption include, and how does your UK contracting company pay for the costs and claim them as expenses?
Recent history
The exemption is a recent entry into the UK tax system. They were first brought in on 6 April 2016. They cover the scenario where a business makes rewards to its directors and staff. Providing certain conditions are met, the allowance is tax-free and an excellent way to reward directors and employees throughout the year.
As mentioned, the exemption is not very well known to many business owners, and many will overlook this or choose not to pay these to their employees. Due to a lack of awareness, many limited company contractors do not even know this allowance exists.
Initial considerations
HM Revenue & Customs (HMRC) official guidance
When we consider trivial benefits, HMRC manual guidance states that a business can provide the exemption to an officer of a `close’ company. An `officer’ means a director or secretary.
The term `close’ company means companies with five or fewer shareholders. In real life, most contractor companies will have nowhere near five shareholders. Therefore, most contractors and small limited company owners will qualify for this tax-deductible exemption as they are directors of close companies.
Limited company trivial benefits -£300 per director
There are further official guidelines from HMRC in respect of the director trivial benefits annual limit. This guidance for trivial benefits for directors’ states that if the total provided does not exceed £300 over the tax year, it is tax-deductible. Therefore, this is effectively the HMRC trivial benefits annual limit.
This applies where the employer is a `close company’ and the business provides a benefit to an individual who is a director or other office holder of the company (or a family member or someone in their household). Where this is so, the total for trivial benefits for directors which can be treated as exempt from tax is capped at a total of £300 in each tax year. This is known as the annual exempt amount.
When the business provides a trivial benefit to a member of the office holder’s family or household, the cost of this counts as part of the office holder’s annual exempt amount. That is unless the member of the family or household is an employee and is taxable on the benefit in their own right as an employee or office holder of the same company.
Members of the office holder’s family or household who are also employees of the same close company each have their own annual cap of £300. As a UK contractor limited company owner, the trivial benefits of £300 per director per annum are one of the benefits when you run your own business.
How do Trivial Benefits work?
HMRC trivial benefits exemption
To be exempt from tax and National Insurance (NI), the business will need to ensure the following four conditions are met when an employee or director receives trivial benefits:
- If the cost of the benefit exceeds £50 inclusive of VAT, it will be taxable personally. Therefore, it should cost your company £50 or less each time; otherwise, the employee/business will need to pay tax / NI on this.
- It isn’t cash or a cash voucher that you can exchange for cash.
- The payment isn’t a reward for any work or performance. Therefore, this payment should not be part of the terms of their contract.
- You do not pay the benefits as part of any work type of duty.
Salary sacrifice
If you provide the exemption as part of a salary sacrifice arrangement to your employees, they will not be tax-exempt. Therefore, you will need to report on form P11D whichever amount is higher:
- The salary that is given up.
- How much you pay for the trivial benefits.
There is nothing new about an employer that provides its staff with benefits such as a gift at Christmas. Employers sometimes offer a free meal to celebrate a member of the staff’s birthday or another special event. Some employers also provide complimentary tea and coffee for their employees at work.
Trivial benefits (£50 limit each time) considerations
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.
It is important to ensure that you do not exceed the limit for directors of `close companies’. If you exceed this, even by a small amount, there will be tax on trivial benefits. This is such that the total cost will be subject to income tax and NI through the employer’s payroll.
It is also crucial to note that the exemption is not the same as benefits in kind (BIK). All other types of benefits that are provided to employees are taxable benefits. BIK applies when your employer provides you with some benefit in connection with an expense or asset they pay for. 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.
Examples of HMRC trivial benefits for directors
What is included?
Some HMRC trivial benefits examples for UK contracting professionals will include costs such as:
- Taking employees out for a meal to celebrate a birthday or other event.
- A few drinks on a work night out.
- Buying employees Christmas or Birthday presents.
- A summer party for employees.
- Flowers on the birth of a new baby.
- Bottles of wine for a special occasion.
- Other items include store gift cards, chocolates, wine, and hampers.
What is not included?
The types of benefits that are not allowed will include:
- Gifts, incentives, or events based on targets, results, or performance.
- Gifts, incentives, or events in connection with employment services such as team building events.
- Taxi fares when employees work late.
- Providing working lunches for employees (as this is related to their employment).
Other considerations
Keep the receipts
With regards to the costs which you incur as part of the exemption, you should retain invoices or receipts when you claim these during the tax year. We will cover some examples of these later in this article.
VAT on trivial benefits
Can you claim the trivial benefits VAT element? Certainly, when you make a payment, you can claim the VAT on this, if:
- The cost is a VAT-inclusive expense; and
- You have a VAT receipt (a receipt or invoice that shows the supplier’s VAT number).
Adhering to the rules
Please remember, if you would like to make a payment of a trivial benefit, it is not in place of any work payment.
What is more, the 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, this needs to be treated as being provided to the officeholder. This is then part of their annual exemption.
Please ensure that you adhere to the limits and exemptions. If you do, the employer will receive a Corporation Tax (CT) deduction on the cost, and the director or employee will receive the personal benefit.
UK contractor considerations
How can you claim these as a UK contractor?
When we investigate trivial benefits, limited company directors can claim for these in line with the above. If you work as a contractor through your own UK business, you can claim these each year, if you follow the above guidelines. They are in fact, one of the benefits for contractors with their own company. When we consider how many trivial benefits in a year, as the annual limit is £300 you could make a trivial benefit payment of up to £50, six times per annum. 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 ensure that the claim is not more than £50 each time. The annual allowance is £300 per director. Therefore, you can claim the £50 up to six times a year. Basically, the amount will save CT at 19% or 25%, depending on whether your contracting company is small or large (see our Corporation Tax guide for details). You also receive the benefit of what items you spend this on. Please also ensure that you obtain the receipts each time your business pays for director’s trivial benefits.
Furthermore, you can also claim the VAT on trivial benefits if the cost includes VAT and you have a receipt to back this up.
Christmas party or annual event
Every tax year, a business can pay up to £150 for its employees for an annual event or what most may term the `annual Christmas party’. This event can be one or several events throughout the year, and as long as you do not exceed the limit, the amount is tax-free.
Final thoughts
Several years after this tax-free expense’s introduction, many UK contracting professionals and other business owners are unaware of it. As a result, many business owners that can claim this do not claim trivial benefits for directors. There is no definitive list that covers what these claims can cover. Therefore, as long as you bear in mind the exemptions above, they can be for any cost.
As a reminder, when you claim for this limited company contractor benefit, you need to make sure:
- The amount you spend will cost you £50 or less each time.
- It is not cash or a voucher that can be exchanged for cash.
- It is not a work-related bonus.
- This is not related to the employee’s work or in their contract.
- The annual limit is trivial benefits £300 per director
Therefore, if you are a contractor who runs your own UK company (with five or fewer shareholders), please consider claiming director’s trivial benefits in the future.
Link to Contractor Advice UK group on