Trivial Benefits for UK directors

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Introduction 

Trivial benefits for directors are an exemption from HM Revenue & Customs (HMRC). Indeed, this tax exemption is one of the benefits of being a company director. If we ask whether contractors get benefits when running their own company, this is one benefit available for UK company directors. However, the director’s trivial benefits aren’t well known to many UK contracting professionals and business owners. Indeed, as many don’t claim HMRC trivial benefits, directors and UK contractors miss out on this `director’s gifts allowance’. This is one of the company director benefits (UK) you can claim as a director’s tax-free allowance when you’re a UK contractor or small limited company owner. Furthermore, this director allowance (UK) currently has an annual limit in place of trivial benefits of £300 per director.

The trivial benefit exemption has now been around for a few years. It’s available if you’re a limited company director of a `close company’ (please see later for the definition of this term) and meet certain conditions. If you qualify, this trivial benefits allowance is tax-free for you and your employees. If you’re contracting in the UK, it’s vital to highlight that it’s one of your contractor’s benefits to claim trivial benefits of up to £300 per director as an annum limit. Moreover, this director’s allowance applies if you’re the sole director of your own company.

When you claim and receive trivial benefits, Corporation Tax is saved on the cost of these. In this guide, we’ll investigate the trivial benefit rules in more detail and consider if you can claim trivial benefits VAT. Moreover, we’ll look at examples of trivial benefits (HMRC) and see how to claim these director and employee trivial benefits.

Initial thoughts 

What are the advantages of director’s trivial benefits (UK)?

As a UK limited company owner, these tax-free benefits for directors are one of the working director’s tax benefits of a limited company. In addition, you can claim them every year as part of your director’s expenses (limited company). However, when we claim these, are trivial benefits tax-deductible?

There are two good aspects for you as a UK contractor and business owner when you claim these as one of your benefits for contractors. When your UK company pays these allowable expenses for limited company directors or employees:

  • You or your employees benefit from this gift allowance personally.
  • Your business saves tax on this at the same time.

Therefore, what do these contractor benefits (limited company) and this UK exemption include? Furthermore, how does your UK contracting company pay for the costs as a corporate director benefit and claim them as business expenses?

Recent history

The trivial benefits legislation exemption is a recent entry into the UK tax system. This contractor benefit (UK) was brought in on 6 April 2016 under draft guidance. The exemption covers the scenario where a business rewards its directors and staff. Providing certain conditions are met, the allowance is tax-free. In addition, these are excellent ways to reward UK directors and employees throughout the year.

As mentioned earlier, many business owners don’t know about the exemption. As a result, lots of businesses will overlook this. Others who are aware may choose not to pay these to their employees. Due to a lack of awareness of trivial benefits for employees and directors, many limited company contractors don’t even know the trivial benefits of £300 per director allowance exist.

Common questions

When a business owner or contractor learns about the exemption, they may have several questions about how to claim these. Such thoughts and questions could include:

  • Can I claim benefits as a company director?
  • What are trivial benefits?
  • Can I claim benefits if I own a limited company?
  • Can a director of a limited company claim benefits?
  • How to account for trivial benefits.
  • What expenses can a director claim?
  • Can you claim VAT on trivial benefits?
  • What expenses can I claim as a director of a limited company?
  • Are trivial benefits allowable for Corporation Tax?
  • Can you have multiple trivial benefits?

This guide will examine the above and determine how to claim this UK exemption.

Initial considerations 

What is HM Revenue & Customs (HMRC) official guidance? 

When we consider the official trivial benefits rules for company directors (UK), HMRC manual guidance states a business can provide the exemption to an officer of a `close’ company. An `officer’ means a director or secretary; therefore, the trivial benefits (close company) apply to directors or a company secretary (if you have one).

The term `close’ company (HMRC) means companies with five or fewer shareholders. In real life, most contractor companies have nowhere near five shareholders. Therefore, most contractors and small limited company owners qualify for this tax-deductible exemption as they’re directors of close companies.

Further guidance

Further official guidelines from HMRC regarding the director’s trivial benefits annual limit exist. This guidance here states if the total provided for limited company benefits (UK) does not exceed £300 over the tax year, it is tax-deductible. Therefore, this is effectively the HMRC trivial benefits limit per year for directors.

This annual trivial benefits limit 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 limited company trivial benefits for directors (UK), which can be treated as exempt from tax, is capped at £300 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, this counts as part of the office holder’s annual exempt amount. That’s unless the family or household member is an employee and is taxable on the benefit as an employee or office holder of the same company.

Members of the office holder’s family or household who are office holders of the same close company each have an annual cap of £300. As a UK contractor limited company owner, the trivial benefits limit per year of £300 per director per annum is one of your director’s benefits when running your business.

How does trivial benefits exemption work? 

HMRC trivial benefits exemption 

To be exempt from tax and National Insurance contributions (NI), the business must ensure the following four conditions are met when a group of employees or directors receive trivial benefits (limited company):

  • If the cost of the benefit exceeds £50, including VAT, it’s taxable personally. Therefore, there should be a cost to your company of £50 trivial benefits or less each time. The employee/business must pay tax/NI if the limit is exceeded.
  • The payment for trivial expenses isn’t cash or a cash voucher you can exchange for cash.
  • The amount you pay 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 to your employees as part of a salary sacrifice arrangement, they’ll not be tax-exempt. Therefore, you must inform HMRC and report these 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 providing its staff with benefits such as Christmas gifts. Employers sometimes offer a free meal to celebrate a staff member’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 trivial benefit HMRC rules, you can afford to spend more on yourself and your staff without paying taxes. Gift vouchers up to £50 are ok to claim, provided you can’t exchange the voucher for cash. It’s vital to ensure you don’t exceed the limit for directors of `close companies.’ If you exceed this, even by a small amount, there’ll be a tax on trivial benefits. This is such that the total cost is subject to income tax and NI through the employer’s payroll.

It’s crucial to note the exemption isn’t the same as benefits in kind (BIK). All other types of benefits provided to employees are taxable benefits. BIK applies when your employer provides you with some benefit from 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’s included?

Please view EIM21863 for examples of HMRC trivial benefits and the related conditions. Therefore, we can take form this such 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.
  • A bottle of wine for a special occasion.
  • Gift vouchers. This could be company staff vouchers for a local store.
  • Gift cards.
  • Other items could include chocolates, celebratory drinks, and hampers.

Any trivial gifts to staff or directors are a business expense, and you should retain the receipt for the cost.

What’s not included?

The types of employee or director benefits which are not allowable 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 it’s related to their employment).

Other thoughts

Should you obtain & retain contractor receipts?

Regarding the costs you incur as part of the exemption, you should retain invoices or receipts. Therefore, you should collect a receipt when you incur the cost during the tax year.

VAT on trivial benefits 

When you claim for these expenses, can you claim the VAT element? Indeed, when making 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 showing the supplier’s VAT number). 

Adhere to the trivial benefits rules

Please remember, if you’d like to pay a trivial benefit, it’s not in place of any work payment.

What’s more, the limit for these benefits of a director or employee mentioned above applies to an officer of a `close’ company. When a business provides a benefit to the director’s family member or household, it’s treated as being provided to the officeholder. As a result, this is then part of their annual exemption.

Please ensure 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 as a UK contractor?

When we research trivial benefits, limited company directors can claim these in line with the above. You can claim these amounts yearly if you work as a contractor through a UK company. However, you should follow the above guidelines. They are one of the benefits for contractors with their own company. If 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 ensure it’s not cash or a cash voucher (a cash voucher is a voucher you can exchange for cash).

Also, please ensure the claim isn’t more than £50 each time. The annual allowance is £300 per director. Therefore, you can claim the £50 up to six times yearly. 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’ll also receive the benefit of what items you spend this on. Please ensure you obtain the receipts each time your business pays for the director’s trivial benefits.

Furthermore, you can claim the VAT on trivial benefits if the cost includes VAT and you have a receipt to back this up.

Contractor Christmas party or annual event

Every tax year, a business can pay up to £150 for its employees for an annual event. Besides the exemption we explain in this guide, this is a separate contractor benefit in the UK. The Annual Event is also a UK exemption; you can claim for this every year when you hold an event or several events. Many regard this as the `annual Christmas party’ when they claim the annual event. As mentioned above, the event can be one or several events throughout the year. In addition, if you don’t 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 still unaware of these employee benefits for contractors. As a result, many business owners who can claim limited company trivial benefits do not do so. No definitive list covers what these claims can include for such employee and company director benefits. Therefore, if you adhere to the rules above, they can be for any cost as part of your director’s expenses (limited company).

As a reminder, when you claim this limited company contractor benefit, you must ensure:

  • The amount you spend will cost you £50 or less each time.
  • It’s not cash or a voucher that can be exchanged for cash.
  • It’s not a work-related bonus.
  • This isn’t related to the employee’s work or contract.
  • The annual limit is trivial benefits of £300 per director.

Finally, if you’re a contractor who runs your own UK company (with five or fewer shareholders), please consider claiming the director’s trivial benefits in the future.

Link to Contractor Advice UK group on

LinkedIn    https://www.linkedin.com/groups/4660081/

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6 Comments

  1. Yakam January 8, 2023 at 4:20 pm - Reply

    Can you apply this trivial gift benefit across more than one company. So if I am a director of 2 companies can I have gifts amounting to £300 X 2?

    • scottmoreton222222 January 9, 2023 at 12:51 pm - Reply

      Yes, it is for each company.

  2. Paul October 6, 2023 at 4:05 pm - Reply

    £150 for a “Christmas party or annual event”. Is this part of the £300 per year annual trivial benefit? The article doesn’t make this clear and simply throws it in at the end with no explanation.

    • scottmoreton222222 October 6, 2023 at 4:47 pm - Reply

      Hi Paul

      The Annual Event allowance (Christmas party) is a separate allowance to the Trivial Benefits Exemption. I hope this helps.

  3. Colin R-D November 6, 2023 at 4:57 pm - Reply

    You say:
    ‘Members of the office holder’s family or household who’re also employees of the same close company each have their own annual cap of £300.’
    Can the member of the household be a non-related person employed by the business?

    • contractoradviceuk November 6, 2023 at 6:06 pm - Reply

      Hi Colin

      We have re-worded the text now. The £300 is per office holder (director / secretary) rather than employee.

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