Trivial benefits for directors is an exemption that is not very well known to a lot of UK business owners. Here I take the time to explain how the HMRC trivial benefits system works.
This allowance is one that you can claim as a business expense when you run your own company. This is also one of my handy tax tips for contractors and small business owners.
There are certain conditions to meet when you claim for director’s Trivial Benefits as business expenses. Please note, there are two good aspects when you claim for these through your company:
- you receive the benefit of the allowance on a personal basis; and
- your business saves tax on this at the same time.
What are trivial benefits for directors and how do you claim for these? Well, trivial benefits are a recent entry into the UK tax system. They were first brought in on 6 April 2016. Indeed, they cover the scenario where a business makes rewards to its directors and staff. The allowance is tax-free, and I would advise that you claim for this, if you qualify. What’s more, it is also an excellent way to reward directors and employees throughout the year.
Most importantly, this expense is not well known. Lots who can claim overlook to do this. Many contractors, due to a lack of awareness, do not even know that this allowance exists.
HM Revenue & Customs’ (HMRC) 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 will qualify for this tax-deductible allowance.
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. Also, you need to retain invoices or receipts for the items that you claim during the tax year.
Trivial Benefits exemption
To be exempt from tax and NI, the Trivial Benefit will need to meet the following four conditions:
- The cost of the trivial benefit is no more than £50 in total inclusive of VAT
- It is not cash or a cash voucher that you can exchange for cash
- The payment is not a reward for any work or performance
- The amount is not part of any work type of duty
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.
What to bear in mind
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 allowance are not the same as benefits in kind (BIK). 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.
Trivial Benefits examples
When you claim for this allowance, it can basically be for any type of cost as long as it is not cash. Examples of trivial benefits could be for items of clothing, a trip to the supermarket, a cinema outing ad many other types of expenses.
Can you claim VAT on trivial benefits?
When you claim for HMRC trivial benefits, you are able to claim VAT on these, if:
a) this is a VAT inclusive expense; and
b) you have a VAT receipt (a receipt or invoice that shows the supplier’s VAT number).
Please also 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, we need to treat this as being provided to the officeholder. This is then part of their annual exemption.
You should adhere to the limits and exemptions. If you do, the employer will receive a Corporation Tax (CT) deduction on the cost of the director’s trivial benefits.
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 claim for this 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 it 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, three years on from the intro of this tax-free expense, many are not aware of it. It is not well known, and 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.
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