What is a Trivial Benefit?
HMRC introduced changes to simplify and reduce the need to report some benefits paid to both employees and directors.
This simplification means there is no tax or National Insurance to pay on certain benefits for employees if all of the following apply:
- The benefit cost £50 or less to provide per employee
- It is not cash or a cash voucher
- It is not a reward for work or performance
- It is not in the terms of the employee’s contract
When all criteria are met, the benefit is known as a ‘trivial benefit’. There is no need to inform HMRC and the exempt trivial benefits will not count towards taxable income or Class 1 National Insurance contributions and do not need to be reported on Forms P11D, P9D or P11D(b).
Before April 2016, these rules weren't in place and any benefits under £50 would be taxed on the employee.
Is there a limit on trivial benefits each year?
Directors of ‘close companies’ cannot receive trivial benefits worth more than £300 in a tax year. A ‘close company’ is a limited company with five or fewer ‘participators’ (shareholders) who are all directors.
How can you benefit from the changes?
The type of trivial benefits that are allowed include expenses such as:
- Taking a group of employees out for a meal to celebrate a birthday
- Buying each employee a Christmas present
- Flowers on the birth of a new baby
- A summer party for employees
The type of benefits not allowed under the exemption include expenses such as:
- Providing a working lunch for employees (because this is related to their employment)
- Gifts, incentives or events related to performance targets or results
- Gifts, incentives or events in relation to employment services e.g. team-building events
- Taxis when employees work late
Here are some practical examples provided by HMRC
Example A - Benefits allowed as trivial
An employer provides each of its employees with a bottle of wine costing £25 at Christmas. However, as an alternative, it provides employees who do not drink alcohol with a £25 gift voucher for a national supermarket chain which they can exchange for an alternative non-alcoholic Christmas gift. Both the bottle of wine and the non-cash gift voucher can be covered by the exemption.
Example B - Benefits not allowed
An employer provides each member of its 25 strong workforce with a bottle of wine at Christmas. The total bill comes to £1,000. This reflects 20 bottles of wine that cost £15 per bottle provided to each of its employees and 5 bottles of wine provided to each of its directors that cost £140 per bottle. In this case it is easy to determine the cost of the individual benefit and the actual cost per item should be applied in determining whether the monetary limit has been exceeded for each employee and director. The benefit of the £15 bottles of wine can be covered by the exemption since the cost does not exceed the trivial benefit financial limit but not the benefit of the £140 bottles of wine provided to the directors.
You will have to declare and pay tax and National Insurance contributions on all other benefits that do not meet the trivial benefits criteria.