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What is Trivial Benefit? How Do They Affect Limited Company Directors?

What is Trivial Benefit? How Do They Affect Limited Company Directors?

Many companies have doubts regarding trivial benefits. Some wrongly classify an expense as a trivial benefit and have to pay tax on these expenses later. If you have even the slightest of confusion regarding this, then you’ve come to the right place.

As a director of a limited company in the UK, you need to be aware of taxation on trivial benefits. This blog will explain trivial benefits, the HMRC (Her Majesty’s Revenue and Customs) rules, and whether you as a director qualify to receive trivial benefits.

What are trivial benefits?

A small gift or a perk not related to performance at the job is classified as a trivial benefit. According to HMRC rules, the following are the conditions that a gift or perk needs to satisfy to be classified as a trivial benefit.

  • The gift value should be less than £50.
  • The gift cannot be given in cash or the form of a cash voucher.
  • Trivial benefits should not be in terms of the employment contract.
  • It cannot be given as a reward for performance.

If any of these conditions are not met, you will need to pay tax on trivial benefits and declare the same to HMRC. You do not need to report trivial benefits on the annual P11D form.

What can be considered trivial benefits? 

Here are some cases where you can claim an expense as a trivial benefit.

  • When you give flowers or chocolates to your employees on special occasions like birthdays, anniversaries, or their child’s birth.
  • If you buy every employee a Christmas present, you can claim the gift as a trivial benefit.
  • Taking out your employees for a meal or in a bar to celebrate their birthday counts as a trivial benefit.

Understand that you cannot give gifts or take out your employees in lieu of their work performance in all these cases. 

What can’t be considered trivial benefits? 

The following types of benefits cannot be claimed as trivial benefits.

  • You cannot claim a working lunch under trivial benefit as the HMRC considers this an expense related to their employment.
  • Giving gifts or taking out your employees for lunch when a performance target is met cannot be claimed as a trivial benefit.
  • Even taxi fare provided to the employees when they work late is not considered a trivial benefit.

In short, irrespective of the amount, you cannot claim an expense as a trivial benefit if it is provided in return for performance or expenditure made during work.

Is there some limitation on trivial benefits? 

Yes, there are monetary limitations on the amount of trivial benefits claimed for every employee.

The maximum limit to which you can claim trivial benefits is set at £50 per employee. If the cost of the trivial benefit is above £50, then the entire amount is taxable and not just the amount above £50.

You can claim £150 per employee and even cover one more person for every employee in case of regular events like Christmas parties for employees.

Salary sacrifice agreement

You cannot claim trivial benefits if they are part of the salary sacrifice agreement. This rule applies to the employees as well as the directors. You will have to pay National insurance and tax if you have claimed such a benefit and report the amount on the P11D of the employees. Here is good read on New Trivial Benefits – Small Expense For Employees

The amount which you will need to declare should be higher of

  • The amount you paid for trivial benefits.
  • The salary is given up as a part of the salary sacrifice arrangement.

However, these rules do not apply if the salary sacrifice agreement was made before 6 April 2017. 

Can company directors receive trivial benefits? 

Yes, company directors can receive trivial benefits, but they should not exceed £300 during a tax year. The rule applies to directors of close companies. HMRC classifies close companies as those limited companies with five or fewer shareholders, all of whom are directors.

This £300 limit is above the exemption provided for annual functions like a Christmas party.

Should you use trivial benefits? 

Trivial benefits can prove to be great morale boosters for your employees. As long as you do not exceed the limit and play within the rules, it is ok to use trivial benefits.