Trivial Benefit an Advice for Small Businesses

What is a ‘Trivial benefit’?

Trivial benefits are tax-exempt for staff and there is no need to reflect these benefits on form P11D or inform Her Majesty's Revenue and Customs (HMRC) about these benefits. ‘Trivial’ benefit rules usually affect employers who offer benefits or expenses to directors or employees. An employer does not have to pay tax on trivial benefits for their employees, and in order to qualify as ‘trivial’, a benefit must satisfy the below mentioned conditions:

• The cost of the benefit should not exceed £50
• The benefit should not be a cash voucher or in cash. Gift cards may qualify until they are not exchangeable for cash
• The benefit should not be a reward for their performance or work
• The employee should not be contractually entitled to the benefit

It must be noted that, if, price of a benefit exceeds £50, the ‘trivial’ benefit rules will not apply and the entire amount will be taxable, and not just the amount exceeding £50. If any of the above mentioned situations are not fulfilled then tax is charged in a usual way, subject to any other allowable deductions or exemptions. Since the benefit is tax-exempt, the employer is not liable to pay National Insurance or tax. These benefits are treated differently from the usual expenses and benefits encompassing childcare, company car, entertainment and travel expense, and health insurance – these are taxable, employer has to deduct National Insurance (NI), and also, report to HMRC

The exemption is also applicable where the trivial benefit is offered by a third party on behalf of the employer. For instance, when the benefit is offered through a management services corporation within a group of firms or by a third-party company to whom management services have been subcontracted, on condition that the cost of the assistance is eventually endured by the employer. This means, when benefits are in-line with the exemption conditions, they will be exempt from NIC and taxation, and not reported on an employee’s P11D. On the other hand, if an employee receives trivial remunerations in the form of a ‘salary sacrifice arrangement’ then they won’t be excused.

An employee will be required to report on form P11D whichever of the below mentioned is higher:

• The amount paid for trivial benefits
• The salary given up

Examples of salary sacrifice are:

Salary	Salary sacrificed	Non cash advantage received	Consequence
£350 per week	£50 of the salary	Childcare voucher to the similar value (not comprising new entrants)	Only £300 will be subject to National Insurance contributions and tax Childcare vouchers are excused from both Class 1 National Insurance contributions and tax up to a limit of £55 per week
£350 per week	£100 of the salary	Childcare vouchers to the similar value (not comprising new entrants)	£295 is subject to National Insurance contributions and tax – PAYE is operated on the £250 cash component, childcare vouchers are exempt from both Class 1 National Insurance contributions and tax up to a limit of £55 per week £45 is reported as a non-cash advantage at the end of the tax year using forms P11D
£5,000 bonus	£5,000	£5,000 employer contribution to listed pension scheme	No employment National Insurance contributions or income tax charge to the employee – the full amount is put in the pension fund

Furthermore, it is also possible to receive benefits in payroll using HMRC’s Payrolling Benefits In Kind (PBIK) service. Through this service, if the benefit does not qualify as ‘trivial’ an employee will be taxed in real time as an alternative to their tax code deduction in a later tax year. Any payroll expense or benefits will no longer be reported on an employee’s P11D, even though a modification will be essential on the business’s P11D(b) in order to receive the Class 1A NIC dues. Beginning 6-Apr-17, it is even possible to payroll credit tokens and non-cash vouchers.

The only benefits that aren’t eligible for payroll are:

1. Benefits with regards to living accommodation
2. Benefits in the form of credit cards and vouchers
3. Other benefits such as interest free or low interest loans

Examples of trivial benefits

As per Her Majesty's Revenue and Customs (HMRC) guidelines, below mentioned are a few examples of trivial benefits:

1. Taking employees out for a meal to celebrate an occasion such as a birthday
2. Giving an employee a birthday gift or Christmas gift
3. Giving flowers when a new baby is born
4. An occasional party for employees

‘Trivial benefit’ rules for a closed company

The exemption limit is available till an entire cost of £300 for a tax year, when the employee is part of a closed business. The trivial advantage is offered to an individual who is a director or any other employee of such a firm. This means that the entire amount of a trivial benefits offered by an organisation, that are exempt from tax, is £300 in any tax year and usually referred to as annual exempt amount

Case in point

Let’s assume, Jeremy is designated as a director of a closed company. During the initial ten month of FY2017/18, Jeremy received six benefits amounting to £45 per benefit –total cost of benefit is equivalent to £270, which is tax-exempt. Additionally, he receives another benefit amounting to £40. Even though the cost of the seventh benefit is below £50, it makes Jeremy exceed his £300 annual cap and hence, the benefit is fully taxable

If Jeremy had not been a director at a closed company, the ultimate benefit would have been exempt

Read More: Process to Wind up a Company

Key terminology and important guidelines for ‘Trivial benefit’

1. PAYE Settlement Agreement (PSA): It is a contract between HMRC and an employer, whereby, the employer/firm will accept National Insurance Contributions (NIC) and tax with regards to approved benefits offered to employees or directors
2. Expenses and Benefits form (P11D): A P11D form is filled by an employer and submitted to HMRC to inform HMRC about the benefits given to directors or employees. On the basis of the submission, an employee will be subject to income tax on benefits received
3. Trivial benefits encompass things such as chocolates, flowers, hampers, wine, or taking staff for meal
4. The benefit cannot comprise a cash component or cash payment – gift vouchers are permitted but only if they cannot be replaced for actual cash. Such gift vouchers should be purchased at distinct times from online vendors such as Tesco/Amazon – don’t purchase multiple vouchers from a similar place as this will be treated as a single benefit
5. Even £50.01 is not acceptable – any amount above the threshold limit will make the entire amount taxable
6. With regards to a service between the employee and employer, the normal tax rules will be applicable such as home broadband. However, if the contract for internet services in between the telecom operation or broadband provider and the employer then such a transaction is accepted as a perk
7. The compensation cannot be for a continuing or reoccurring cost such as year on year gym membership, yearly broadband charges

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