At the end of each tax year employers must file a P11D report with HMRC detailing benefits that have been transferred to employees during the year. However, there is a tax and NI exemption available if the benefit enjoyed is considered “trivial”. Below we look at what falls within this exemption and how you might make the most of it.
What normally happens when an employee receives a benefit?
An employee who receives a benefit from their employer will normally be required to pay tax and National Insurance on the item. Such examples might be a company car, health insurance, travel expenses or childcare.
What is a “trivial benefit”?
An exemption to this general rule was introduced in 2016 and applies to “trivial benefits”. According to HMRC a trivial benefit must:
- cost £50 or less,
- may not be cash or a cash voucher (this doesn’t include
- a voucher you can use to exchange for goods or services, e.g. a gift token),
- can not be a reward for their work or performance and
- isn’t in the terms of their employment contract.
If you’re not sure whether an item classifies as a trivial benefit you can give us a call on 01932 269529 or use the HMRC employer helpline.
Directors and trivial benefits
You need to be aware that there is a limit of £300 on the amount of trivial benefits that can be received by directors of “close” companies. (A “close” company is one which is owned by 5 or fewer shareholders). Nevertheless, it is well worth taking advantage of this tax benefit. Over 10 years it can save you and the company £1,824 in tax and NI for each director. What’s more, the exemption is available to every director so they too can enjoy up to £300 of trivial benefits each tax year.
Making the most of Trivial benefits
The £300 can apply to any benefits other than a cash payment or cash voucher provided they don’t cost more than £50. You might purchase 30 vouchers costing £10 each for use at a beauty salon or six vouchers of £50 for a wine merchant. This could also be an opportunity to support your local business!
You may find it more convenient to buy six £50 vouchers that could be used at a large online retailer . This will allow you or the recipient to use the vouchers altogether and purchase a larger item.
Christmas is coming
If you haven’t already used up the exemption make sure you take advantage. Spoil your friends and family by using the company to buy their Christmas gifts since this counts as an exempt trivial benefit for you. Beware delivery costs however as these count towards the £50 limit.
Alternatively, enjoy a Christmas party with the other directors and each bring a guest. For a group event you are not expected to calculate the exact amount of each person’s share of the bill. As long as the cost is less than £50 per person this is entirely acceptable. Enjoy!
For queries on this or any other tax related matter please get in touch with North Star Accounting. We’d love to hear from you.