Back in 2016 the HMRC announced a measure to allow businesses to give gifts (trivial benefits) to their employees without being taxed on them.
Receiving a gift from your employer is a great feeling for an employee, but in the workplace – and we hate to be the people to break up the party – you (the employer) needs to be aware of whether or not you need to pay tax on the present.
The introduction of this exemption provided by employers allows (in certain circumstances), you to provide tax free staff entertainment or make gifts to your staff where the value doesn’t exceed £50 each time. You can give multiple gifts of up to £50 per employee per year up to a total of £300 per employee inclusive of VAT.
So what is the best way to incentivise your team?
-> It must not be a reward for services
Trivial benefits are things like meals out, staff parties and gifts given to employees for special occasions such as birthdays, weddings or Christmas. However, Trivial benefits cannot be provided to say thanks for a job well done or a reward such as reaching a sales target.
-> It costs less than £50 per employee
The value or deemed value must be £50 or less in each instance. Even £50.01 would mean the whole gift is taxable!
-> It cannot be cash, or a voucher for cash
The gift cannot be a cash gift, or a voucher that can be exchanged for cash, as it then would be seen as a payment for their work, and therefore taxable.
->It isn’t in the terms of the employees’ contract
The gift cannot be part of employee’s contract, otherwise it would be classed as a payment for their work, and therefore taxable.
The key distinction when defining trivial benefits is that they are not intended to add financial value to an employee’s pay-check, and cannot be given in lieu of payment.
They are trivial in the traditional sense of the word; having little actual value.
When can I give a trivial benefit?
Examples of where an employer may consider paying trivial benefits include:
- Faith days
- Pizza Friday (or pub Friday if you like a tipple)
- Special events personal to the employee such as a wedding or birth of their child.
What kind of trivial benefit can be provided?
The benefits can include anything except for cash or vouchers that can be redeemed for cash. Examples of benefits provided by clients include:
- A turkey at Christmas
- Tickets for a show
- A golf lesson
- Gift vouchers for a retail business
- Christmas party
Is there a limit on the amount of trivial benefits?
For employees there are no limits to the number of times they can receive a trivial benefit in the tax year.
What about Directors of Close Companies?
Unlike regular employees, there is an additional restriction for directors of close companies (companies with 5 or fewer owners or where all shareholders are directors).
The director’s tax exemptions are restricted to a total of £300 in the tax year. For directors where the trivial benefit is provided to a member of their family, this is treated as being provided to the director and counts towards their annual £300 exemption amount.
If my company exceeds the limit – what happens next?
Previously all benefits however small would have been declared on a form called the P11d and taxed through payroll, or reported in a PAYE settlement agreement if the employer was paying tax and national insurance on the benefit.
With this exemption, only gifts over the value of £50 (incl VAT) for employees (£300 incl VAT for directors) need to be declared on the P11d.