Trivial benefits for limited company directors

One of the key benefits of running a limited company is the tax efficiency it offers compared to unincorporated businesses. For instance, limited company directors can claim certain allowable expenses that sole traders can’t. Plus, they can withdraw a tax-efficient combination of a director’s salary and dividend payments.

But did you know that limited company directors are also entitled to trivial benefits? These are small, tax- and National Insurance-free gifts that you don’t need to declare to HMRC.

Keep reading to find out what trivial benefits are and how they work.

What are trivial benefits?

Trivial benefits are a type of employee reward. They are small, one-off gifts you might give to an employee or colleague to say thank you or congratulations – like some flowers or a box of chocolates.

As they’re inexpensive goodwill gestures, HMRC deems these purchases as ‘trivial’. They don’t need to know that you’ve issued trivial benefits, so they are not subject to tax or National Insurance (NI).

What qualifies as a trivial benefit?

A purchase must meet all four of the below requirements to qualify as a trivial benefit:

• Cost less than £50 to provide (including VAT) 
• Not be provided in cash or cash vouchers 
• Not be awarded for work or performance 
• Not be included in a worker’s employment contract 

Examples include:

• Tea, coffee, or a water cooler provided in the workplace 
• Small gifts to employees (such as chocolates or a bottle of wine to celebrate a birthday, anniversary, or another special occasion) 
• Seasonal gifts (e.g., Christmas presents)
• Minor health checks and services (e.g., seasonal flu jab)

Damage repairs could qualify as a trivial benefit if your team can access employer-provided cycles. The cost to the employer should generally be below £20 per repair. For more information on each of these expenses, check the HMRC website.

What doesn’t qualify as a trivial benefit?

As we explained above, any transaction that doesn’t satisfy all four qualifying conditions doesn’t count as a trivial benefit. This includes:

• Work lunches
• Bonuses
• Gifts awarded for performance
• Travel or accommodation for employees working late
• Benefits provided via a salary sacrifice arrangement (you’ll need to report these via a P11D form like all other taxable benefits, unless the arrangement was made before 6 April 2017)

Examples of what is and isn’t a trivial benefit

Understanding what does and doesn’t count as a trivial benefit can get confusing. Let’s look at some examples to help clarify this:

Example 1: You send an employee a £35 bouquet of flowers to celebrate their birthday. This is a trivial benefit, as it costs you less than £50 to provide and is not work-related.

Example 2: You send an employee a £20 bottle of wine to reward them for reaching their monthly sales target. Even though the value is below £50, the intent behind it is performance-based, and therefore, the gift doesn’t qualify as a trivial benefit.

Example 3: You take an employee out for a birthday meal and spend £55 on their portion of the order. While it’s not a work-related event, this isn’t a trivial benefit as it’s over the £50 per head limit.

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Example 4: A colleague is expecting a baby, and you gift them £40 in cash. As trivial benefits must be in non-cash form, this doesn’t qualify. However, providing the £40 as a gift card would qualify.

The key points to remember are that the cost per person must be £50 or less, in non-cash form, and the reason for the gift must not be related to someone’s performance or terms of employment.

If you’re unsure which gifts qualify as trivial benefits or want more information on taxation on certain benefits, please contact a qualified tax advisor.

Are limited company directors entitled to trivial benefits?

Generally speaking, limited company directors are entitled to trivial benefits from the company. That’s because, in general, most directors have an employment contract with their company and are, therefore, employees.

However, directors of ‘close’ companies (limited companies with no more than five shareholders) can’t receive trivial benefits if their combined value exceeds £300 in a tax year (the £50 limit still applies to individual benefits). Note that the £300 limit doesn’t apply to annual events like Christmas parties.

That said, there is an alternative where close companies can have any number of shareholders so long as they are directors.

Advantages of providing trivial benefits

If they’re trivial, why would you bother giving employees these benefits? Let’s take a look at the advantages:

• Tax-free: They may be small, but companies don’t pay tax or NI on trivial benefits. Not only that but not having to report them to HMRC reduces a lot of administration time.
• Generous allowance: £50 per person (or £300 per tax year) is a generous tax-free allowance for treating your employees on special occasions.
• Additional well-being support: Provide employees with free flu jabs at no cost to the employer. This is useful for small companies that are unable to offer private healthcare.
• Flexible: As they are not tied to employment contracts, you can provide trivial benefits as and when you like.
• Happy employees: Trivial benefits can help improve morale and job satisfaction. Something as simple as a cake on someone’s birthday can make their day.

Difference between trivial benefits and benefits-in-kind

It’s easy to confuse benefits-in-kind (BIK) with trivial benefits. BIKs are generally more substantial employee benefits, which require reporting to HMRC and paying tax and National Insurance on.

BIKs include ‘traditional’ perks like private healthcare, gym memberships, and company cars, all of which are directly related to a worker’s terms of employment and cost more than £50 to provide.

By contrast, trivial benefits are small, occasional, non-cash gifts you’d give a colleague as a goodwill gesture.

That said, there are several high-value benefits in kind that are non-taxable, such as:

• Employer contributions to a private pension scheme
• Medical treatment of up to £500 to help an employee return to work after a minimum of 28 days of sick leave
• Expenses for home office equipment

Essentially, any expense that satisfies the four requirements listed earlier is a trivial benefit. We recommend that you seek professional tax advice for anything that doesn’t.

Visit the HMRC website for more information on how different expenses and benefits are taxed.

Time to treat your employees to trivial benefits

There are numerous tax-free benefits for limited companies to take advantage of. If you’re a director, you can give and receive trivial benefits if they meet the criteria outlined in this blog.

Do you have a question about limited company benefits? Leave a comment below, and we will respond soon.

If you want to register a limited company, the best place to start is on Rapid Formations’ homepage, where you can check if your company name is available to use at Companies House.