Trivial Benefits for UK directors

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Introduction 

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

The trivial benefit exemption has now been around for a few years. Basically, 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 key to highlight that it’s one of your contractor’s benefits to claim for trivial benefits of up to £300 per director as an annum limit. What’s more, this director’s allowance also applies if you’re a sole director of your own company.

When you claim and receive trivial benefits, Corporation Tax will be 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. What’s more, we’ll look at some trivial benefits examples (HMRC) and consider how to claim these director and employee trivial benefits.

Initial thoughts 

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 directors tax benefits of a limited company. In addition, they’re something you can claim every year as part of your director’s expenses (limited company). However, when we make a claim for these, are trivial benefits tax-deductible?

There are two good aspects for you as a UK contractor and business owner, when you make use of 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 on a personal basis.
  • 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 and contractor benefit (UK) is a recent entry into the UK tax system. They were first brought in on 6 April 2016 under draft guidance. The exemption covers the scenario where a business makes rewards to its directors and staff. Providing certain conditions are met, the allowance is tax-free. In addition, these are an excellent way to reward UK directors and employees throughout the year.

As we mention earlier, the exemption isn’t very well known to many business owners. As a result, lots of businesses will overlook this. Others, who’re aware, may choose not to pay these to their employees. Due to a lack of awareness of trivial benefits for employees and directors, there are many limited company contractors who do not even know that the trivial benefits £300 per director allowance exists.

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?

In this guide, we’ll look at the above and find out how to claim for this UK exemption.

Initial considerations 

HM Revenue & Customs (HMRC) official guidance 

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

The term `close’ company (HMRC) 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 qualify for this tax-deductible exemption as they are directors of close companies.

Further guidance

There are further official guidelines from HMRC in respect of the director trivial benefits annual limit. This guidance on this states that 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 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’re also office holders of the same close company each have their own annual cap of £300. As a UK contractor limited company owner, the amount of trivial benefits limit per year of £300 per director per annum are one of your director’s benefits when running your own business.

How does the trivial benefits exemption work? 

HMRC trivial benefits exemption 

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

  • If the cost of the benefit exceeds £50 inclusive of VAT, it will be taxable personally. Therefore, there should be a cost your company of £50 trivial benefits or less each time. If the limit is exceeded, the employee/business will need to pay tax / NI on this.
  • The payment for trivial expenses isn’t cash or a cash voucher that 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 as part of a salary sacrifice arrangements to your employees, they’ll not be tax-exempt. Therefore, you’ll need to 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 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 trivial benefit HMRC 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’s important to ensure you do not exceed the limit for directors of `close companies.’ If you exceed this, even by a small amount, there’ll 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’s 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?

Please view EIM21863 for some HMRC trivial benefits examples and the related conditions. Therefore, we can take form this that 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 of these trivial gifts to staff or directors will be a business expense and you should also retain the receipt for the cost.

What is not included?

The types of the employee or director benefit 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 this is related to their employment).

Other considerations

Keep your contractor receipts

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

VAT on trivial benefits 

When you claim for these expenses, can you claim the VAT element? Certainly, 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 that shows the supplier’s VAT number). 

Adhere to the trivial benefits rules

Please remember, if you’d like to make a payment of 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. 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. As a result, 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 research 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. However, you should 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’s not cash or a cash voucher (a cash voucher is a voucher that you can exchange for cash).

Also, please ensure that 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 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’ll 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 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. This is a separate contractor benefit in the UK besides the exemption we explain in this guide. The Annual Event is also a UK exemption, and you can claim for this every year when you hold an event or events. When claiming for the event, many regard this as the `annual Christmas party’. As we mention, 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 that can claim this don’t claim limited company trivial benefits. There’s no definitive list which cover what these claims can include for such employee and company director benefits. Therefore, as long as you bear in mind the exemptions above, they can be for any cost as part of your director expenses (limited company).

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’s not cash or a voucher that can be exchanged for cash.
  • It’s 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

Finally, if you’re 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

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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