Blogs/Vlogs

Trivial benefits

17 March 2020

With the gradual clamp down on tax relief for benefits in kind, it is difficult to give anything of worth to your employees without the burden of tax on the employee. However, HMRC recognise that for smaller items, it is not practical or efficient to collect the small amount of tax due. This is where trivial benefits come into their own with no additional tax implications or reporting duties.

What is a trivial benefit?

Trivial benefits are best described as ‘token gifts’ given by a company to their employees. HMRC do have guidelines when it comes to what they define as trivial but if the below conditions are met, the gift will be tax free for the employer:

  • It is not cash or a cash voucher
  • It is not a reward for their work or performance
  • It is not in the terms of their contract
  • It costs the employer £50 or less per employee

There is not a limit on the number of trivial benefits that can be provided in the tax year, except where the individual is a director in a close company. In this case, the total value of the trivial benefits cannot exceed an annual cap of £300.

When all of these conditions have been met, the benefit is classed as trivial. Therefore, HMRC will not need to be informed and the trivial benefit will not count towards taxable income or Class 1 National Insurance.

What might be covered by this exemption?

Trivial benefits may include:

  • Purchasing drinks at a work outing
  • Food treats in the office
  • Flowers for a special occasion
  • A summer BBQ

The key distinction is that they are not intended to add financial value to an employee’s salary.

Why should employers offer trivial benefits?

On average, employees shift between eight companies in their lifetime. A company that offers different benefits rather than standard gifts of corporate culture may encourage higher rates of employee retention and performance.

Additionally, trivial benefits can help employees feel valued in a modern workplace so using these every so often may increase day-to-day productivity.

What are the limits on trivial benefits?

If the benefit exceeds £50, the full amount will be taxable and also subject to National Insurance. However, if you want to settle your employees’ tax liability on their benefit too, you can enter into a PAYE Settlement Agreement (PSA).

The concept of a PSA is to allow an employer to settle an employee’s tax liability on minor or irregular benefits or expense payments. As well as a gesture of goodwill from the employer to the employee, a PSA also has administrative advantages.

As a result of new legislation, employers will no longer be required to report such benefits on either form P11D or via PSA at the year end. However, employers will still be required to ensure they keep good records of who has received trivial benefits and the value in the event of any enquiries by HMRC.

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