Take advantage: tax free benefit for directors and employees

Don’t be put off by the technical name. What are called ‘trivial’ benefits, are far from trivial. They can make a very worthwhile add-on to remuneration, allowing you to provide a benefit to an employee with no tax, no National Insurance: and no need to notify HMRC. There’s no limit on the number you can provide in a year - except for company directors and family members. An added advantage is that employers can claim income or corporation tax relief on the cost involved. But strict criteria apply.

Critical small print

A benefit must meet the following conditions. It must not cost more than £50 (including VAT) to provide and must not be cash or a voucher that can be redeemed for cash. Non-cash vouchers, like store cards, pass the test, though. It must not be a reward for particular services carried out by the worker, and should not be in the terms of the worker’s contract. Neither can it form part of a salary sacrifice arrangement.

Don’t make it a reward for services. Trivial benefits can fail the rules by appearing to be a reward for services. So don’t give a bottle of wine because someone made a great contribution – make it a morale booster on a grey day. Some businesses have used trivial benefits to enhance staff wellbeing during Covid-19, for example.

What constitutes a contractual element can be contentious: HMRC maintains that repeated provision of a benefit could create a legitimate employee expectation. This could then be viewed as a contractual arrangement which would fail to qualify.

Getting it right for company directors

There’s a £300 limit to the trivial benefits that directors or office holders of ‘close’ companies (limited companies run by five or fewer shareholders) can receive in any one tax year. This includes benefits given to family or household members who aren’t directors or employees of the company. But if other family members are also directors, they have their own £300 limit.

Working with you

Trivial benefits were very much on HMRC’s radar a year or so ago, but professional opinion is that HMRC’s interpretation of the rules could be unduly restrictive. For an in-depth discussion, do please contact us.