HMRC have pretty stringent criteria on what they classify as ‘trivial’. Once a benefit satisfies four conditions it can be considered trivial. Read on to find out more.
What is a trivial benefit?
Where a benefit is provided to an employee by an employer, it will be exempt from tax and NI if the following four conditions are met:
- it must not be cash or a cash voucher
- it must not be more than £50 (per gift)
- it must not be part of a salary sacrifice arrangement or any contractual obligation; and
- it must not be provided in recognition of particular services in the course of employment, or in anticipation of such services
It is the VAT inclusive amount that is considered and if the amount of the gift exceeds £50 then it is all taxable and not just the excess above £50.
In its simplest form a close company is a limited company where there are 5 or fewer directors who are also shareholders. For such companies the above conditions must apply and there is an annual cap of £300 for trivial benefits per director.
HMRC advises that if an employee would have legal grounds to object where the benefit was not provided then the benefit would likely fail the conditions set out above. This highlights the importance of the benefit not being contractual.
To be able to claim the trivial benefits the benefit must be paid for from the business account. The gifts must not be as a reward for work as this would fail the conditions. They can however be random gifts out of the blue or perhaps a gift on a staff members birthday.