Not so trivial – What is a trivial benefit?
A trivial benefit is a tax and national insurance free employee benefit that is small in value (hence the name ‘trival’). They must cost you £50 (including VAT) or less to provide, must not be in the form of cash or cash voucher, cannot be a reward for the employees work and must not be a part of their contract.
Directors of close companies (less than 5 shareholders) can receive no more than £300 in trivial benefits per year in addition to dividends and salary.
In this blog post on trivial benefits, HRD aims to help business owners understand how to make the most of their trivial benefits allowance and to explain why trivial benefits are a good thing for employers and employees alike.
What qualifies as a trivial benefit?
As long as the benefit meets the criteria above, a trivial benefit can take many forms, such as a box of choccies, a meal out for a birthday or even a bottle of wine (a New Zealand, Sauvignon Blanc for us please!).
Benefits for Employers
There is nothing trivial about the tax-free status of trivial benefits. It means that you as an employer can provide morale boosting gifts and experiences for your employees, in a tax efficient and affordable way.
All business owners will know how difficult it can be to motivate employees and to retain good staff, and that is why utilising your trivial benefits allowance is extremely important. Little gestures can make a big impact on how your company is perceived and how motivated your staff feel, and trivial benefits can play a huge part in boosting morale and employee satisfaction, and enhancing employee retention and loyalty.
Generally, benefits to employees would need to be included on a P11D, would incur tax for the employee and national insurance for the employer. However, if they satisfy the rules for trivial benefits, there is no tax or national insurance payable by either the employee or employer.
For companies, trivial benefits are an allowable expense for corporation tax relief and for sole traders they are also a tax deductible expense when provided to employees of the business.
How to Account for Trivial Benefits in Your Business
Accounting for trivial benefits in your business is essential to ensure compliance and maintain financial transparency. Here’s a straightforward approach:
Record Each Benefit: Whenever you provide a trivial benefit, make a detailed record. Note the date, recipient, nature of the benefit, and its cost. This documentation will help in tracking expenditures and verifying that each benefit meets the £50 limit.
Categorise Expenses: Set up a specific expense category in your accounting system for trivial benefits. This will help segregate these costs from other employee-related expenses and provide clarity in financial statements.
Monitor the £300 Annual Limit: For directors and office holders of close companies (and their families), there’s an annual cap of £300 on trivial benefits. Keep a running total to ensure you don’t exceed this limit.
Keep Receipts: Retain all receipts and invoices for the trivial benefits provided. This not only supports your records but also ensures you have evidence in case of an enquiry by HMRC.
Review Regularly: Periodically review the trivial benefits expenses to ensure they are within the prescribed limits and compliant with HMRC regulations.
Communicate with Us: Ensure your accountant is aware of your trivial benefits transactions. We can provide advice on best practices and ensure that they are accounted for correctly.
By carefully accounting for trivial benefits, your business can enjoy the perks of this allowance while staying organised and compliant with tax regulations.
Common Mistakes to Avoid
One of the most common mistakes when it comes to trivial benefits is not understanding the HMRC guidelines. Remember that to qualify as a trivial benefit, it must cost you £50 or less to provide, must not be in the form of cash or cash voucher, cannot be a reward for the employees work and must not be a part of their contract.
Remember, the trivial benefit is a tax relief, not a claimable tax credit, meaning you can’t claim the benefit retrospectively; you MUST incur a cost and all trivial benefits are to be paid directly from a business bank account. Also, if you spend more than the £50 per employee limit (per occurrence), the employee will be taxed on the entire gift amount, not just the amount over the £50, and national insurance will be payable by the employer.
It is also important to ensure that any benefits provided do qualify as trivial. For example, if you are providing your employees with cash this will not qualify. It needs to be added to the value of their other earnings and have tax and national insurance deducted through the payroll. If you are incentivising their work with pre-agreed rewards, or you have exceeded the £50 allowance, then that won’t qualify as trivial and you will be expected to declare this on a P11D with tax and national insurance payable.
And lastly, you should always keep proper records of any trivial benefits that you do give, as this will help with your accounting and ensure you stay compliant with the rules.
FAQs About Trivial Benefits
What is a trivial benefit?
A trivial benefit is a tax and national insurance free employee benefit that is small in value (hence the name ‘trival’). They must cost you £50 or less to provide, must not be in the form of cash or cash vouchers, cannot be a reward for the employees work and must not be a part of their contract.
What is an example of a trivial benefit?
Buying a bottle of wine for an employee’s birthday or a bunch of flowers, or buying small gifts to mark the arrival of a baby are all trivial benefits. Giving gift cards (as long as they are not redeemable for cash) and buying Christmas presents would all count too.
Can trivial benefits be backdated?
For directors of close companies, the limit on trivial benefits is £300 for the tax year, and if you don’t use that allowance within the year, you essentially lose that benefit and it cannot be backdated.
Are trivial benefits tax deductible?
Yes, employers can claim trivial benefits as expenses in their accounts and receive tax relief.
Can sole traders receive trivial benefits?
Unfortunately sole traders cannot claim trivial benefits for themselves, but they can take advantage of trivial benefits for their employees.
Can you claim the VAT back on trivial benefits?
Yes! If you are registered for VAT, you can claim the VAT back on trivial benefits.
In Conclusion
Trivial benefits allowance is a tax efficient way of motivating your employees and showing your appreciation. As long as the benefit costs you £50 or less each time, it’s a great way to mark milestones like birthdays, pregnancies, anniversaries or ‘just because’. If you are the owner of a business, we would encourage you to use your trivial benefits allowance.
For advice on how to use your trivial benefits allowance in the most tax efficient way, contact Henry R Davis and Co on: 01244 831277
Additional Resources
https://www.gov.uk/expenses-and-benefits-trivial-benefits