Small benefits. Simple rules. Useful tax savings.
Running your own company doesn’t mean every little perk has to create another tax or National Insurance bill.
The trivial benefits rules allow employers to provide certain small benefits to employees without the benefit normally being subject to Income Tax or National Insurance.
For owner-managed companies, there can be an additional opportunity for directors -but there are some important rules to understand.
What is a trivial benefit?
A benefit can generally qualify as a trivial benefit where all of the following conditions are met:
- It costs £50 or less
- It is not cash or a cash voucher
- It is not a reward for work or performance
- It is not provided as part of the employee’s contractual terms
Examples might include a small birthday gift, a Christmas gift or a meal or treat for employees, provided the conditions are met.
The £50 limit applies to the cost of the benefit, including VAT where applicable.
What about directors?
There is an additional restriction for directors and other office-holders of close companies. For directors of close companies, qualifying trivial benefits are generally subject to an annual cap of £300 per tax year.
This means that a director could potentially receive several qualifying benefits during the year, provided the individual benefits meet the rules and the overall annual limit is not exceeded.
For example:
- £50 birthday gift
- £50 Christmas gift
- £50 anniversary gift
- £50 summer treat
- £50 other qualifying benefit
That would total £250.
A further qualifying benefit could potentially take the total to £300.
What can’t you do?
The rules are not a way of simply taking £50 of cash out of the company whenever you want.
For example, a cash payment of £50 would not normally qualify. A cash voucher also doesn’t qualify.
There are also restrictions where the benefit is effectively a reward for performance or work.
This is why it’s important to look at the nature of the benefit rather than simply applying a £50 rule to everything.
What about Christmas gifts?
A Christmas gift can potentially qualify as a trivial benefit if it meets the conditions.
There are also separate rules for annual functions such as Christmas parties, so it is worth considering which exemption applies rather than assuming every staff Christmas expense falls under trivial benefits.
Why does this matter?
£50 might not sound like a significant amount.
But for a small business owner, using legitimate tax allowances properly can add up over the course of a year.
More importantly, it is about making sure you’re not unnecessarily paying tax on things that could have been provided tax efficiently.
Keep records
Even where something qualifies as a tax-free trivial benefit, you should still keep appropriate records.
A simple record of:
- What was purchased
- The date
- The cost
- Who received it
Why it qualifies can make it much easier to demonstrate that the rules have been followed.
The Profectus view
We don’t believe tax planning should be complicated.
There are often small allowances and opportunities available to business owners that are easy to overlook simply because nobody has explained them.
Our job isn’t just to prepare your accounts. It’s to make sure you’re making the most of the opportunities available to you.
If you’re a company director and want to know whether you could make better use of trivial benefits or other tax-efficient benefits, speak to Profectus.
