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How to account for trivial benefits
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    Did you know that there is a cost-effective, tax-free way to boost employee morale and treat yourself as a company director? In 2016, the UK government introduced “trivial benefits”, allowing employers to provide small gifts or perks to their employees without incurring tax liabilities.

    To qualify for trivial benefit tax relief, a gift must not:

    • exceed £50
    • be cash or a cash voucher
    • be performance-related
    • be related to contracted employment services

    Providing these criteria are met, there is no need to pay tax or National Insurance on these gifts or include them on a P11D.

    Essentially, trivial benefits are allowable expenses and therefore tax deductible. This provides employers with a valuable, cost-effective way of treating their staff.

    There are some finer details to understand, for example, how trivial benefits affect limited company directors. In this article, we’ll take a look at the subject in more depth.

    What is a trivial benefit exemption?

    The Finance Act 2016 introduced tax-exempt trivial benefits which allow companies to provide a gift or perk of up to £50 per individual which can be claimed as a taxable expense. That is, as long as the gift conforms to the rules, i.e. is under £50, is not a cash voucher and is not related to performance or contractual duties.

    All other benefits that don’t meet these criteria are subject to tax and National Insurance.

    Trivial benefits and salary sacrifice arrangements

    A salary sacrifice scheme is an arrangement where an employee agrees to give up part of their salary or bonus in exchange for non-cash benefits, such as company cars, pension contributions or childcare vouchers. It’s vital to understand that a non-cash gift given as part of a salary sacrifice arrangement is deemed a taxable benefit and is NOT eligible for trivial benefit tax exemption.

    If so, income tax and National Insurance contributions must be paid on these benefits and declared on the staff member’s P11D form. The amount declared should be the higher of the sacrificed salary or the cost of the benefit.

    Tax-free trivial benefits – The Rules

    It’s essential to adhere to trivial benefit rules to stay compliant and avoid penalties.

    For a benefit to be eligible for tax relief, the following conditions must be met:

    1. The trivial benefit should NOT exceed £50 per individual benefit. However, you can make as many gifts of £50 as you like to an employee throughout the tax year (except company directors, see section below).Example: An employer gifts a bottle of wine as a Christmas present to each staff member, at a cost of £15 each. They also gift flowers for each employee’s birthday at a cost of £25. All of these gifts are acceptable tax-free trivial benefits.
    2. It should not be a cash benefit. Gift vouchers are acceptable, as long as they cannot be exchanged for cash.Example: Some of the employees don’t drink alcohol, so the employer gifts them a £15 voucher for a supermarket instead. Both the bottle of wine and the voucher are classed as trivial benefits.
    3. Should not be related to work or performance targets.Example: A party to celebrate end-of-year sales results is NOT a trivial benefit even if the cost is below £50 per head, as it is performance-related.
    4. Cannot relate to contracted employment duties
    5. ExampleEvents related to employees’ contracted duties do NOT qualify as trivial benefits, which include team building events and working lunches for employees.

    If a gift meets all these criteria, then it isn’t classed as taxable income for the employee and the company can treat it as a tax deductible expense.

    Things to be mindful of

    • Don’t spend more than £50 on any one occasion. If the benefit costs over £50, the full amount of the benefit is taxable – not just the excess amount.
    • The trivial benefit is a tax relief, not a claimable tax credit, i.e. you can’t claim the benefit at the end of the year; you MUST incur a cost.
    • All trivial benefits are to be paid directly from a business bank account.

    Do trivial benefits apply to limited company directors?

    As a limited company director, you and your family members can also claim trivial benefits. However, there is one significant difference for directors of ‘close companies’.

    As a director of a ‘close company’, i.e. one that is governed by five or fewer shareholders, there is an annual trivial benefit threshold of £300, with no more than £50 per trivial benefit. If you provide trivial benefits to a family member who is not a director or employee of your company, this benefit will be deducted from your benefit allowance.

    Trivial benefits examples

    Provided the trivial benefit is not provided in the form of cash, it could be anything below £50 per head, such as:

    • Flowers for a special occasion like an anniversary
    • A Christmas present
    • A meal (that is not related to performance targets or a working lunch)
    • A non-cash gift voucher, e.g. a store voucher that can’t be exchanged for cash

    How many trivial benefits can you have in a year?

    Your staff can receive trivial benefits on as many occasions as you wish throughout the tax year, as long as each one adheres to the rules, i.e. it’s below £50, it’s not a cash voucher, and it’s not related to performance or a contractual obligation.

    For company directors, there is an annual limit, however. They can gift themself a trivial benefit up to a cost of £50 per time but only up to £300 per tax year.

    How do you account for a group event?

    Say you take your team of six for a meal to celebrate someone’s birthday. The bill comes to £240, but everyone ordered something different from the menu, so it’s difficult to work out the individual cost.

    In this scenario, thankfully, common sense prevails, and you can calculate an average cost per head. In this example, the average cost per head is £40, so it is within the trivial benefit threshold and is tax-exempt.

    Contact WIS Accountancy for advice on tax and trivial benefits

    We hope this article has helped you to understand how to account for trivial benefits. It’s a tricky area, so if you require further advice, please do not hesitate to get in touch with WIS Accountancy.

    We are small business accounting specialists providing services such as payrollbookkeepingself-assessmentVAT returns and Corporation Tax returns.

    Contact us today for a free consultation.

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