Trivial Benefits are often unknown to many business owners.
The ‘Trivial Benefits’ rule is intended to allow you to buy gifts for your team. And importantly, so they do not get taxed on it.
For example, a turkey at Christmas, a bottle of wine on their birthday etc. As a director of a limited company, you can use it too!
Without this set of rules, the employee (or you) would pay tax and/or national insurance on the ‘benefit’ of the free turkey!
This rule does have applications outside of a limited company but for now, we are going to concentrate on its use as a director of a limited company.
Trivial Benefits are small gifts for your team. Even if that team is you as a limited company director! Small, in this case, is under £50.
HMRC used to have a ‘concession’ on this (for the turkey/chocs/wine), but in April 2016 the rules were changed. Previously there was not a value attached to it and was therefore quite subjective.
For a gift to be within the rules:
- The cost of the ‘benefit’ is not more than £50 – it’s all or nothing, so if £52, it’s all taxable.
- The benefit is not cash(!)
- The benefit is not provided in recognition of the employee’s service (say hitting a target) or part of their contract
- It can’t be regular – HMRC gives an example in their guidance of a cake each Friday.
- The company needs to incur the expense – you can’t reimburse yourself or your team member for the cost.
In their view, it would now be a ‘legitimate expectation’ and fall outside the rules.
With this in mind, it wouldn’t work for things that are linked, such as gym membership at £25 a month.
So how does this help me?
Well, if you have a team – it’s great news for them. You also get a corporation tax deduction. This reduces your company tax bill and depending on the gift, if you are VAT registered you can recover the VAT.
As a director, you may realise that for the odd thing under £50 you would normally buy for yourself, you can ask ‘Is this a trivial benefit’? If so, the company could buy it and it doesn’t come out of your personal income.
This is great as instead of using the money you’ve paid corporation tax and personal tax on, you would actually be getting a tax deduction on it!