Running a limited company comes with its fair share of responsibilities and challenges, but it also offers various opportunities for tax-efficient perks. One such avenue is the provision of trivial benefits for directors and employees. Recognising the importance of maintaining a healthy work-life balance, and fostering a positive workplace culture, HMRC has established guidelines to encourage the provision of small, non-cash benefits without incurring tax liabilities.
What are trivial benefits?
Trivial benefits are non-cash perks provided by an employer to its employees. These benefits are considered ‘trivial’ if they meet certain conditions outlined by HMRC. Trivial benefits present a valuable opportunity to enhance the overall employee experience while maintaining tax efficiency. By adhering to HMRC guidelines, and incorporating these perks into your company culture, you can create a positive and rewarding workplace for both directors and employees alike. As always, consulting with a tax professional is recommended to ensure compliance with the latest regulations and maximise the benefits for all parties involved.
Key guidelines
You don’t have to pay tax on a benefit for your employee if all of the following apply:
Cost limit: To qualify as a trivial benefit, the cost per benefit must not exceed £50. It’s important to note that this is a per-item limit, allowing for multiple benefits to be provided over the course of a tax year.
No cash payments: Trivial benefits must be non-cash in nature. Cash or cash vouchers are not eligible. This ensures that the benefits are tangible items or experiences rather than a monetary transaction.
Not a reward for work: Trivial benefits are intended to be spontaneous gestures of goodwill, rather than rewards for work or performance. They should not be linked to employment duties or contractual obligations.
Exclusion of directors’ family members: While limited company directors can enjoy trivial benefits, these benefits cannot be extended to close family members, such as spouses or children. The focus is on providing benefits to employees/directors rather than shareholders.
You have to pay tax on any benefits that don’t meet all these criteria.
You can’t receive trivial benefits worth more than £300 in a tax year (i.e. 6 x £50) if you’re the director of a ‘close’ company. (A close company is a limited company that’s run by 5 or fewer shareholders).
Click here to see the HMRC guidelines
Advantages of trivial benefits:
Tax efficiency: One of the primary advantages of providing trivial benefits is the tax efficiency it offers. The benefits are exempt from income tax, national insurance contributions (NICs), and reporting requirements, making them a cost-effective way to enhance the overall remuneration package.
Employee morale and well-being: Trivial benefits contribute to a positive workplace culture by showing appreciation for employees’ efforts. This, in turn, can boost morale and well-being, fostering a more motivated and engaged workforce.
Flexibility and versatility: With the £50 per benefit limit, employers have the flexibility to provide a variety of small perks throughout the year. This versatility allows for a tailored approach to employee recognition and satisfaction.
Team building and relationships: Trivial benefits can be utilised to strengthen team dynamics and build positive relationships within the company. Social events, team outings, or small tokens of appreciation contribute to a cohesive and supportive work environment.
Disclaimer: The tax rates and reliefs mentioned in this blog were correct at the time of posting (February 2023) and have not been updated for any future changes in tax law or HMRC practice. The contents of this blog have been produced as a helpful reference point and the information provided should be used as a guide only. You should discuss your specific circumstances directly with us before taking any action based on the information included in this blog.
Want to know more about tax relief? Click here to learn about pre-trading expenses