Do you have to pay tax on trivial benefits?

Employers can now pay so-called ‘trivial perks’ to employees without having to declare them to HM Revenue & Customs (HMRC), thanks to new laws that went into effect in April 2016.

Small 'token presents' offered by management to their staff are best defined as trivial benefits. This can take many different shapes and forms, but gestures are the most common. They are not meant to increase the value of an employee's remuneration and cannot be offered in lieu of money.

You must keep in mind that there are standards to follow while dealing with HM Revenue & Customs (HMRC) to prevent getting charged with tax or national insurance.

What is a Trivial Benefit?
According to HMRC, you are not required to pay tax based on the following:

  • costs £50 or less to provide;
  • it's not cash or a cash voucher;
  • it's not a reward for their work or performance;
  • it’s not in the terms of their contract.

To elaborate further, these are the types of trivial benefits that are currently allowed by HMRC:

  • Organising a meal for a group of employees to commemorate a birthday;
  • Purchasing a Christmas present for each employee;
  • Flowers for the birth of a new baby.

You must keep in mind that the entire cost of the benefit, not simply the excess above £50, is taxable if it exceeds £50. Calculating the average cost per employee is acceptable in cases where individual costs cannot be reliably assessed due to group events. 

Additionally, regular activities for employees, such as summer or Christmas parties, are subject to special requirements, which apply to limited companies but not sole traders.

Furthermore, you may be eligible to claim up to £150 per employee for certain annual events, as well as a plus one for each employee.

There are certain benefits that are not considered trivial benefits such as:

  • Serving working lunches to employees (because this is related to their employment);
  • Gifts, incentives, or events tied to specific performance goals or outcomes;
  • Gifts, incentives, or events related to employment services, such as team-building activities;
  • Taxi costs for employees who worked late.

Are there any limits? 
During a tax year, directors of ‘close’ businesses are not allowed to receive trivial benefits of more than £300 in total and no more than £50 for each individual benefit.

A limited company with five or fewer participators (shareholders) who are all directors is referred to as a ‘close’ company. 

This £300 limit is distinct from the previously specified exemption for yearly celebrations, such as a Christmas party.

Can I provide my employees trivial benefits as part of a salary sacrifice arrangement?
Employees or the limited company director will not be excluded if you give them trivial benefits as part of a salary sacrifice arrangement.

In addition to this, you will have to pay tax and National Insurance (NI) on them, as well as declare them on the employee's P11D. The highest of the following amounts would be declared based on the following: 

  • the salary you gave up
  • the amount you paid for the frills

Why you should provide your employees trivial benefits?
In comparison to the market a decade ago, the job environment has changed dramatically. There has been a growth of 'business benefits' in this time, which have gone from being an unusual perk to being a standard feature of most job descriptions. 

This is partly due to the slow-growth economic environment into which most young people have graduated.

Employers have had to come up with imaginative new techniques to attract the attention of top talent in a crowded job market in order to combat stagnant compensation and stagnant career growth. Because its main premise is to make work-life more joyful, trivial benefits offered itself as one of the most effective ways to accomplish so.

Furthermore, there is a demand for ‘ethical organisations’ that care about their employees, with the condition that they offer business-wide incentive programmes for hard work.

In today's workplace, employees want to feel valued, and a paycheck is simply not enough. In truth, it's not a gesture at all; it's a legal duty. 

Moreover, while trivial benefits may not cost the employer anything, they can make a significant difference to your employees, particularly your junior staff who may require a little extra financial assistance as well. 

We encourage you to offer your employees as many business benefits as you can, including trivial benefits, because a corporation that pushes the boundaries and engages its employees, will have a stronger, more connected workforce. This can help you be more productive on a daily basis and lower the high levels of employee turnover that have become common in the UK employment market.

If you are unsure about which benefits are considered a trivial benefit, please contact Persona Finance at [] for more information or for other business and accounting queries.
Accounting and Finance