It is sometimes the little things that matter and employee satisfaction and engagement is forefront for many employers.
As a business owner in the UK, understanding how to effectively make use of tax-efficient benefits for your employees is essential.
One option to consider is the ‘trivial benefit’ – a small gesture that can enhance employee satisfaction without the burden of additional taxes.
In this week’s Tax Tuesday, we explore what constitutes a trivial benefit, the rules surrounding them and share some practical examples.
Understanding trivial benefits
A trivial benefit is a gift or ‘extra’ provided to employees that meets specific criteria, allowing it to be exempt from Income Tax and National Insurance.
According to HMRC, an employee benefit is ‘trivial’ if it:
- cost you £50 or less,
- is not cash or a cash voucher,
- is not a reward for work or performance, and
- does not form part of the terms of an employee’s contract.
By adhering to these rules, trivial benefits can be a simple and effective way to show appreciation to your employees.
Rules and limits
While there is no limit to the number of trivial benefits you can provide to employees throughout the year, it’s important to note the following restrictions for directors and other officeholders of ‘close’ companies.
- You cannot receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company (i.e. a limited company run by 5 or fewer shareholders). Note: this £300 cap is separate to the exemption for annual events (e.g. Christmas party / Summer BBQ).
- For all other employees, there is no annual cap on the total value of trivial benefits they can receive.
Some practical examples of trivial benefits
Below we share some practical examples of how you might consider using trivial benefits in your business:
Gift vouchers:
Provide a £50 voucher for a popular retail store or restaurant. You must ensure that the voucher cannot be exchanged for cash (or else it will not qualify).
Celebratory gifts:
Give small gifts to celebrate birthdays, work anniversaries or holidays. For instance, a bottle of wine, a bouquet of flowers or a box of chocolates costing £50 or less.
Staff meals:
Occasionally treat your employees to a meal out. As long as the cost per person is £50 or less and it’s not a reward for performance, it qualifies as a trivial benefit. In this group example, it can be impractical to work out an exact per employee cost. HMRC advises that employers take a common-sense approach and calculate the average cost per person.
Seasonal gifts:
Distribute small seasonal gifts such as Easter eggs, Christmas hampers, or festive treats, ensuring each item stays within the £50 limit.
Entertainment:
Offer tickets to local events, such as cinema or theatre tickets, with a cost of £50 or less per ticket.
Why use trivial benefits?
Enhancing employee morale:
Regularly providing small, thoughtful gifts can boost morale and show employees that their hard work is appreciated.
Cost-effective:
As these benefits are exempt from Income Tax and National Insurance, they are a cost-effective way to reward your employees.
Flexibility:
The wide range of items that can qualify as trivial benefits allows you to tailor them to your employees’ preferences and interests.
How can we help?
Utilising trivial benefits can be a straightforward yet powerful tool for enhancing employee satisfaction. By providing small benefits that adhere to HMRC’s guidelines, you can offer meaningful rewards without incurring additional tax liabilities.
To find out more about trivial benefits, or if you have any specific questions, feel free to reach out to your usual relationship principal, email tax@haroldsharp.co.uk or call 0161 905 1616.