Trivial benefits are an exemption that is available, yet these are not very well known to a lot of 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 to you and your employees.
The benefits of claiming for Trivial Benefits
Please note, there are two good aspects when your company pays trivial benefits to you as the director or its employees:
- you or your employees receive the benefit of the allowance on a personal basis; and
- 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 it is also an excellent way to reward directors and employees throughout the year.
As mentioned, the trivial benefit exemption is not very well known to lots of business owners and many overlook to or just choose not to pay these to their employees. Many contractors, due to a lack of awareness, do not even know that 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 that have 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.
There is some further official guidance from HMRC with regards to 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. In addition, you will need to retain invoices or receipts for the trivial benefits that you claim for during the tax year.
Trivial Benefits exemption
To be exempt from tax and National insurance, 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:
- how much you paid 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 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.
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 the Trivial Benefit 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 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.
Examples of trivial benefits
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 such as store gift cards, chocolates, wine, 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 relation to 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).
Can you claim VAT on trivial benefits?
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 £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, this needs to be treated as being provided to the officeholder. This is then part of their annual exemption.
Please ensure that 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 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 receive trivial benefits and claim for these 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 the claim 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, several years on from the introduction of this tax-free expense, many are not aware 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 trivial benefits can cover. Therefore, as long as you bear in mind the exemptions above, it can be for any cost.
As a reminder, when you claim for trivial benefits, you just 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
- It 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 think about claiming for this in the future.
Link to Contractor Advice UK group on