There may be an occasion where your employer provides team members with either small gifts or perks, without incurring tax charges. These are better known as trivial benefits.
These benefits are exempt from income tax, National Insurance contributions, and don’t need to be reported to HMRC. Think of it as the duty free of the corporate world, but with a smaller limit!
To explain in more detail, Kelly Yang, Tax Manager for our Manchester office, will outline some examples of trivial benefits, as well as running through the conditions and benefits for both employers and employees.
Over to Kelly
Trivial benefits are a simple, yet cost-effective way that employers can show their appreciation for team members. Providing gifts, and tax free at that, allows trivial benefits to be a benefit for everyone.
Below I’ve listed some examples of trivial benefits, as well as defining what qualifies, and if you were to implement trivial benefits for your business, what you need to be aware of.
Examples of trivial benefits
A gift some employees may want to receive from their employer could be a trip abroad, or a very expensive and flashy car perhaps. Although it would be great to gift either, unfortunately the cost of each item must not exceed £50 to qualify as a trivial benefit. The reason for this limit is to ensure that trivial benefits are truly ‘trivial’, and not seen to provide an additional income to employees. Sadly, that means the Lamborghini is out!
It’s also worth noting that Directors are limited to £300 per annum as trivial benefits in ‘close’ companies (privately owned with 5 or less shareholders). In other words, the maximum amount of money a company Director can spend on trivial benefits without paying income tax or National Insurance contributions is £300 for each tax year.
Here are some trivial benefit examples that employees can receive:
- Gift vouchers.
- Team lunch (up to £50 per person).
- Tickets to attractions like a museum or theme park.
- Flowers.
- (Life is like) A box of chocolates.
Conditions of trivial benefits
Several conditions need to be met for a benefit to be able to qualify as ‘trivial’, and become exempt from income tax, national insurance contributions and reporting to HMRC. Here are the main ones:
- It cannot be cash or a cash voucher.
- The benefit must not be given as part of a contractual obligation in exchange for work.
- It mustn’t be given to a family member or a close associate.
- The benefit cannot be provided as part of a salary sacrifice arrangement.
If any of these conditions aren’t met, the benefit will not be able to qualify as a trivial benefit and will become subject to income tax and national insurance contributions, either on the annual P11d, or via an employer PAYE Settlement Agreement (PSA). Employers must also make sure they keep accurate records of all trivial benefits that are given to employees.
Benefits for employers
Trivial benefits are of course great to help boost morale and improve employee retention, but they can be more than just tax-free tokens to show gratitude to team members:
Flexibility
It may be a surprise to some due to the already implemented limitations, but trivial benefits are flexible, and can be tailored to suit the need of individuals or a group of team members. It can also help to add personalisation to the gift and can be modified to their hobbies and interests.
Enhance company culture
Rewarding team members regularly can lead to core pillars that can help shape office culture and businesses, including better collaboration, communication, and teamwork.
Attract new talent
New joiners may be impressed by the business who looks to treat their people well and takes an interest in their needs outside of work (it cannot be part of the remuneration package otherwise it’s not meeting the criteria).
Benefits for employees
From feeling valued and recognised to potentially reducing stress levels, trivial benefits can provide a range of benefits to team members. This can include:
Improved morale
Receiving small gifts or perks on occasion can help to create a positive environment and culture, and boost team morale. It can also help to improve overall wellbeing of team members and improve their mental health and general feeling of the workplace.
Enhanced company culture (Yes it works for both!)
Trivial benefits can contribute to a positive company culture by fostering a sense of team spirit and community. This can lead to better relationships between employees and improved collaboration.
Financial payments
Employees can save money on small items or events that they may have otherwise paid for themselves. This can be particularly beneficial for those on lower incomes.
How to implement trivial benefits
If you would like to implement trivial benefits into your business, it’s worth getting a plan together beforehand. Some steps you’ll need to consider are:
Decide on a budget
Determine how much you can afford to spend on trivial benefits for your employees and remember that each item or event must cost a maximum of £50 or less.
Choose appropriate benefits
Consider which trivial benefits would be most appropriate for your employees and the culture of your company. A nice touch is making it personalised to the receiver, if possible. For example, if they love pottery painting, why not get them a voucher to a pottery class!
Keep records
Keep accurate records of all trivial benefits provided to employees in case of an audit. This will also help you to track your spending and ensure that you stay within your budget.
Stay within guidelines
Make sure that all trivial benefits you provide meet the conditions set out by HMRC. This includes ensuring that each benefit costs £50 or less, is not a cash payment or voucher, and is not part of a contractual obligation, or otherwise linked to the employment or business performance.
We can help
If trivial benefits sound like something you’d like to offer as part of your employee benefit package but aren’t quite sure where to start, we can help. To speak to our Tax Team and arrange an initial meeting at a time that suits you, please email [email protected].
