Trivial benefits for directors are an available exemption, yet these are not very well known to many UK business owners.
The system has been around for a few years, and if you are a company director of a `close company’, this allowance will be tax-free for you and your employees.
The benefits of director’s trivial benefits
Please note that there are two good aspects for you as a business owner when you pay trivial benefits:
- 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 company pay for the costs and claim them as expenses?
Trivial benefits are 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 trivial benefits 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 contractors do not even know this allowance exists.
HM Revenue & Customs (HMRC) official 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 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.
Trivial benefits -£300 per director
There is further official guidance from HMRC regarding the trivial benefits annual limit. This guidance states that if the total provided does not exceed £300 over the tax year, it is tax-deductible.
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 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.
Please note that 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.
With regard to the costs incurred for trivial benefits, you should retain invoices or receipts when you claim these during the tax year.
Trivial benefits exemption
To be exempt from tax and National Insurance (NI), the Trivial Benefit will need to meet the following four conditions:
- If the cost of the trivial 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.
- The amount is not part of any work type of duty.
If you provide trivial benefits 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.
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 that you need to ensure you do not exceed the limit. If you exceed this, even by a small amount, the total cost will be subject to income tax and NI through the employer’s payroll.
It is also crucial to note that the trivial benefits 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 trivial benefits for directors
The types of costs that are allowed will include:
- 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.
The types of benefits that are not allowed as trivial benefits 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).
VAT on trivial benefits
Can you claim VAT on trivial benefits? Please note, when you claim for HMRC trivial benefits, you can claim for the VAT on these, 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).
Please 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 trivial benefits £300 per director 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.
How can you claim these as a UK contractor?
If you work as a contractor through your own UK business, when you claim trivial benefits for directors, you can receive and claim these each year, if 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 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. The amount will save CT at 19%. 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 a trivial benefit.
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.
Several years after this tax-free expense’s introduction, many are unaware of it. As a result, many business owners that can claim this do not do so. There is no definitive list that covers what HMRC’s trivial benefits 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 trivial benefits, 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.
Therefore, if you are a contractor who runs your own UK company (with five or fewer shareholders), please consider claiming this in the future.
Link to Contractor Advice UK group on