Employers looking to incentivise and reward employees in a meaningful but cost-effective way should consider the use of the trivial benefits exemption.
Trivial benefits are tax-free employee benefits given as small token gifts and are described as ‘trivial’ because they usually have little value. Used correctly, they offer a tax efficient way to engage with employees and help boost morale.
Trivial benefits can come in any shape or form, but common examples may include a box of chocolates or a bunch of flowers to celebrate an employee’s birthday or work anniversary. Essentially, trivial benefits are things that employees don’t expect to receive from their employer.
Trivial benefits don’t need to be reported to HMRC. They’re exempt from Income Tax and National Insurance provided all of the following conditions are met:
There’s no definitive list of benefits that can be regarded as trivial - trivial benefits can be a wide manner of different things. The most common examples of trivial benefits are;
Provided employers keep within the rules, the trivial benefits exemption allows them to provide small gifts and other perks to their employees, meaning it’s usually easy to work out the cost when buying an individual gift.
However, when providing a benefit to a group of employees it can be a little trickier. For example, what if you take your employees out to a restaurant to celebrate someone’s birthday and everyone orders something different from the menu?
When it’s impractical to work out what you have spent on each employee, you should calculate the average cost per person. If the average cost is less than £50 per person, you should be able to treat this as a trivial benefit, provided it meets the other criteria. When deciding whether it’s appropriate to take an average cost per person, HMRC guidance states this will depend on the circumstances and advises employers to take a common-sense approach.
There’s a specific rule for directors of ‘close’ companies (typically limited companies controlled by five or fewer shareholders). Directors cannot receive trivial benefits worth more than £300 in total during a tax year.
Where a trivial benefit is provided to a member of the office holder’s family or household, then the cost of the trivial benefit counts towards the £300 annual limit, unless the member of the family or household is taxed on the benefit in their own right as an employee or office holder of the same company.
There’s no annual cap for employees who aren’t directors.
Trivial benefits can be a simple yet effective way to enhance employee satisfaction in a tax efficient manner. By providing small perks, you can create a more motivated workforce. If you have any questions regarding trivial benefits and the exemption in practice, please get in touch with Director Gail Swinburn (gailswinburn@lubbockfine.co.uk).
