Trivial benefits are small, non-cash gifts that a business can provide to employees and directors completely free of tax and National Insurance, provided they meet HMRC’s qualifying conditions.
The trivial benefits exemption was introduced on 6 April 2016 under the Finance Act 2016, but the principle behind it is not new. For many years prior, HMRC had an informal practice of not taxing small, non-cash seasonal gifts to employees, a turkey at Christmas being the most commonly cited example.
This was never written into law; it was simply accepted by HMRC on a common sense basis, with no formal rules for employers to follow. The Finance Act 2016 was introduced to change that, giving employers a clear and reliable set of rules rather than having to rely on HMRC’s informal approach or hope that their individual circumstances would be treated consistently.
If you run a small business, understanding trivial benefits can help you reward your team in a tax-efficient manner, without unnecessary complexity. For support with trivial benefits, reporting expenses and managing benefits, speak to our team at DS Burge & Co.
This guide will cover everything your business needs to know about trivial benefits: what counts, what doesn’t count, and extra rules for directors of close companies.
Table of Contents
What Are Trivial Benefits?
A trivial benefit is a non-cash gift or perk provided by an employer to an employee or director that is fully exempt from Income Tax and National Insurance contributions, provided it meets all of HMRC’s qualifying conditions. The statutory exemptions for trivial benefits were introduced in April 2016 and remain one of the more straightforward tax reliefs available to small businesses, as they do not need to be included on a P11D or processed through payroll.
How Do Trivial Benefits Differ from Taxable Benefits in Kind?
Most employee benefits, whether that is a company car, private medical insurance, or a gym membership, are classified as benefits-in-kind and must be reported to HMRC, with income tax and Class 1A National Insurance due on their value. Trivial benefits do not need to be reported, declared, or taxed in any way.
The Four Qualifying Conditions
To qualify as a trivial benefit under HMRC’s ruling, the following four conditions must be met:
- Benefit cost limit: The benefit must cost no more than £50, including VAT. Where a benefit is provided to a group of employees, and it is not practicable to calculate the exact cost per person, the average cost per employee may be used.
- Non-cash requirement: The benefit must not be cash or a cash voucher. A non-cash gift voucher, such as a store-specific gift card, can qualify, provided it cannot be redeemed for a cash amount.
- No reward for services: The benefit must not be provided as a reward for work, performance, or services. The benefit must be a genuine gesture of goodwill, completely detached from the employee’s performance or duties.
- No contractual entitlement: The benefit must not be provided under a contract and must not form part of a salary sacrifice arrangement. If the employee has a right to receive it, or the benefit is exchanged for a salary reduction, the exemption is lost.
Examples of What Usually Qualifies as a Trivial Benefit
The following table sets out some of the most common examples of trivial benefits for a small business:
| Category | Example |
|---|---|
| Birthday Meal | Taking employees out for lunch to mark a special occasion, such as a birthday, as long as the cost per person is £50 or less. |
| Christmas Gifts | Gifting employees a bottle of wine costing £25 at Christmas. As a non-alcoholic alternative, a £25 gift voucher for a national supermarket chain would also qualify, provided the voucher cannot be exchanged for cash. |
| Workplace Treats | Occasionally buying fruit baskets, coffees, biscuits, or other snacks for employees, provided they are not being purchased to reward performance or to fulfil a contractual obligation. |
It is important to note that businesses do not need to declare trivial benefits to HMRC. There is no requirement to include trivial benefits on a P11D form, process them through payroll, or report them in any other way.
It is important to keep hold of receipts, invoices or a simple internal log detailing the date, cost, recipient, and occasion for each gift. This is because HMRC may challenge benefits at any point during a routine enquiry or inspection. Being able to demonstrate that the benefit genuinely met all the qualifying conditions helps to provide protection if questions are ever raised.
Examples of What May Not Qualify as a Trivial Benefit
Not every small or inexpensive gift will qualify as a trivial benefit. The following table illustrates some of the common pitfalls for small businesses when trying to use a trivial benefit.
| Category | Example | Why this benefit doesn’t qualify |
|---|---|---|
| Gift Cards | Providing an employee with a gift card costing £10, and topping up the same card on seven further occasions at £10 per occasion. | Although the employer topped up the card on separate occasions, HMRC treats this as a single benefit relating to the provision of the gift card. The total cost across all top-ups is £80, which exceeds the £50 limit. The entire amount is therefore taxable. |
| Performance Rewards | Providing employees with gifts for completing projects, meeting deadlines, or hitting sales targets. | Even if the gift is non-cash and costs £50 or under, the benefit is directly tied to performance and therefore fails one of the four qualifying conditions. It is fully taxable regardless of its value. |
| Salary Sacrifice | Providing employees with perks such as food, gift cards, accommodation, or transportation in exchange for a salary reduction. | Benefits provided as part of a salary sacrifice arrangement are taxable. The rules do not apply to any arrangement made on or after 6 April 2017. |
| Reimbursement | Providing an employee with a reimbursement for a gift they purchased themselves. | Even if the gift is £50 or under, a reimbursement is treated as a cash payment and therefore fails the second qualifying condition. |
Where a benefit does not meet all four of HMRC’s qualifying conditions, it will be treated as a taxable benefit-in-kind. This means it must be declared to HMRC, with Income Tax and Class 1A National Insurance due on its value. Taxable benefits can be reported in one of two ways:
- Via a P11D form: Submitted to HMRC after the end of the tax year; or
- Through payroll: By payrolling the benefit so that the correct tax is deducted from the employee’s pay in real time throughout the year.
For many small businesses, this is where good advice saves time. The cost of fixing a reporting error later is often higher than the cost of getting the treatment right before the benefit is provided.
Reclaiming VAT on Trivial Benefits
For a business that is VAT registered, the VAT treatment of a trivial benefit depends on whether the gift is a physical item, a gift card, or a voucher.
Physical Goods
Physical goods, such as a bottle of wine, flowers, or a hamper, are purchased with VAT included in the price. For a VAT-registered business, it is possible to reclaim this input VAT on physical goods purchased as a trivial benefit for employees, provided the purchase meets the normal rules for input tax recovery. It is important to note that the £50 threshold for trivial benefits is calculated on the total cost, including VAT.
When purchasing gifts from a wholesale business, where VAT is often shown as a separate line item, care must be taken to ensure the £50 limit is not exceeded.
Gift Cards and Vouchers
The majority of gift cards and vouchers are classed as multi-purpose vouchers under VAT rules, meaning that no VAT is charged or accounted for at the point of purchase. The VAT is instead accounted for by the retailer when the card is ultimately redeemed and spent. As a result, there is generally no input VAT for the employer to reclaim on the purchase.
By contrast, a single-purpose voucher, which is designed for the purchase of a specific product or service, where the VAT rate is known at the time of purchase, may have VAT applied upfront, which can be reclaimed following the standard VAT reclaim process.
VAT is a separate issue from Income Tax and National Insurance. A benefit can qualify as a trivial benefit for employment tax purposes while still having its own VAT treatment. This is one of the areas where small businesses often make assumptions that do not hold up under review.
For support with reclaiming VAT on trivial benefits or your business’s VAT returns, speak to one of DS Burge & Co’s expert VAT advisors.
Trivial Benefit Rules for Directors of Close Companies
For most employees, there is no annual cap on the total value of trivial benefits they can receive, provided each individual benefit meets the four qualifying conditions. For directors of close companies, specific additional rules apply. A close company is a limited company that is controlled by five or fewer shareholders, or by any number of directors who are also shareholders.
How The £300 Annual Exempt Amount Works
Where the employer is a close company, and the benefit is provided to a director or other office holder of that company (or to a member of their family or household), the total value of trivial benefits that can be received tax-free is capped at £300 per tax year. Where a company has two directors, each director has their own £300 allowance.
It is important to understand that this £300 limit runs with the tax year (6 April – 5 April), not the company’s accounting period. A director cannot carry unused allowances forward from one tax year to the next.
Family and Household Members
The £300 cap also extends to family or household members of the director. If trivial benefits are provided to a director’s spouse, civil partner, or other members of their household, the value of those benefits counts towards the director’s £300 annual limit. Where a family member is also an employee or director of the company in their own right, they will have their own separate £300 allowance.
How The £300 Limit Works With Annual Staff Events and Parties
The trivial benefits allowance sits separately from the exemption for annual staff events and parties. Employers can provide annual events, such as a Christmas party or summer gathering, with a total cost of up to £150 per person, including VAT, without triggering tax charges.
A director of a close company could therefore benefit from both their £300 trivial benefits allowance and attend an annual event costing up to £150 per head, without any overlap between the two reliefs.
What Happens if These Rules Are Not Met
Where a trivial benefit fails to meet any of the four qualifying conditions, it will be taxed under the normal benefits rules.
For directors of close companies, up to £300 in qualifying trivial benefits can be received tax-free in a tax year. If a further benefit takes the total above the £300 annual exempt amount, the latter benefit is not exempt, although earlier qualifying benefits can remain tax-free. For example, if a director has already received £270 of qualifying trivial benefits and then receives a further benefit worth £40, that £40 benefit will not qualify as it results in the £300 limit being exceeded.
Where a benefit does not qualify as a trivial benefit, the following may apply:
- Income Tax: The employee or director may be taxed on the value of the benefit through payroll or on a P11D.
- National Insurance: The employer may have to pay Class 1A National Insurance on the taxable benefit.
At DS Burge & Co, we offer tailored business tax advice to small businesses to help you remain HMRC compliant and make the most of the reliefs available to you. To find out more about how we can support your small business, speak to one of our specialist small business accountants.
Can You Take 6 x £50 Trivial Benefits as a Director?
In principle, yes. A director of a close company can receive six separate qualifying benefits of £50 across a tax year and remain within the £300 annual exempt amount. However, there are some important practical caveats to understand before attempting to use the allowance in this way.
The first important aspect to consider is the timing of each of these benefits. A director receiving these six benefits of £50 each in a single day, or over a short period, could be treated by HMRC as receiving a single benefit. If several gifts are provided in close succession and appear to relate to the same occasion or intention, HMRC could aggregate their values and treat them as one benefit, resulting in the £50 limit being exceeded. The gifts must each be genuinely separate, occasional, and unconnected to one another.
The second, and arguably one of the most significant aspects of trivial benefits, is the intention of the benefit. Trivial benefits must be a genuine gesture of goodwill, completely detached from the director’s performance or duties. Even when benefits satisfy qualifying conditions on paper, HMRC tax inspectors could question and scrutinise expenditure to ensure it has been incurred for legitimate purposes.
For instance, assume that a director of a close company receives six separate gift vouchers throughout the year, worth £50 each. While technically these benefits may meet the qualifying conditions and fall within the £300 threshold, they are open to scrutiny by HMRC. If these purchases appear regular, planned, or mechanical, an HMRC tax inspector may conclude that these benefits are not genuine but instead have been arranged to exploit the exemption. In this scenario, the whole amount could be treated as taxable, and the company could face additional tax, National Insurance, interest and penalties.
At DS Burge & Co, it is our view that HMRC is likely to have issues with cases such as this, where a director sets out at the start of the tax year to maximise their £300 allowance through a series of pre-planned voucher purchases, with little or no supporting rationale for each gift beyond the desire to use their allowance. Additionally, HMRC are starting to ramp up their inspections of trivial benefits.
Conclusion
Trivial benefits offer a simple and effective way for employers and directors to reward employees with small, tax-free gifts without the administrative burden associated with benefits-in-kind. Provided a benefit meets all qualifying conditions, it will be completely exempt from Income Tax and National Insurance, with no need to report it to HMRC.
For directors of close companies, the same four qualifying conditions apply, but an additional annual cap of £300 per director, per tax year, is applied. It is therefore important to keep track of allowances to ensure these benefits are exempt from tax charges. Keeping clear records, including receipts, dates, costs, recipients, and the occasion for each gift, is essential to satisfy any potential questions raised by HMRC.
At DS Burge & Co, our team of chartered accountants can help your small business with checking and reporting employee benefits and expenses, ensuring your business remains fully compliant with HMRC’s requirements. Contact a DS Burge & Co office today.