Trivial Benefits: What Small Limited Company Directors Need to Know
Small limited company directors often focus on salary, dividends and pensions when looking at tax planning.
But there is another small, useful exemption that is often missed: trivial benefits.
Used correctly, trivial benefits allow a company to provide small gifts or benefits to directors and employees without Income Tax or National Insurance.
The company can also usually claim Corporation Tax relief on the cost.
This does not mean the company can give tax-free cash or disguise salary as gifts.
The rules are specific, and each condition needs to be met.
What is a trivial benefit?
A trivial benefit is a small benefit provided by an employer to an employee or director.
If the conditions are met, there is:
no Income Tax for the employee or director;
no employee National Insurance;
no employer National Insurance;
no P11D reporting;
and the company can usually claim the cost as a business expense.
For small owner-managed companies, trivial benefits can be a simple way to take a small amount of value from the company tax efficiently.
Step 1: The benefit must cost £50 or less
The first rule is that each benefit must cost £50 or less, including VAT.
This is a strict limit.
It is not an allowance.
This means:
a gift costing £50 can qualify;
a gift costing £51 does not partly qualify;
if the cost is over £50, the whole amount becomes taxable.
For example, if the company gives a director a £50 gift voucher, it may qualify if all the other rules are met.
If the voucher costs £51, the full £51 is taxable, not just the extra £1.
Step 2: It must not be cash or a cash voucher
The benefit cannot be cash.
It also cannot be a voucher that can be exchanged for cash.
However, a normal retail gift voucher can usually qualify, provided it cannot be exchanged for cash and the other trivial benefit conditions are met.
Examples that may qualify include:
a birthday gift;
flowers;
chocolates;
a bottle of wine;
a retail gift card;
a Christmas gift;
or a small hamper.
The key point is that the director or employee must receive a benefit, not cash.
Step 3: It must not be a reward for work
This is one of the most important rules.
The benefit must not be provided as a reward for work or performance.
For example:
A £30 birthday voucher may qualify.
A £30 voucher given because someone has won a new client would not qualify.
This is because the second example is linked to work performance.
Trivial benefits should be occasional gifts, not bonuses.
Step 4: It must not be contractual
The benefit must not be part of the employee’s contract.
It must also not be something the employee is entitled to receive.
For example, if an employment contract says the employee will receive a £50 gift voucher every month, this would not be a trivial benefit.
It would be part of their reward package.
A trivial benefit should be optional, occasional and not expected as part of employment terms.
Step 5: Directors of close companies have a £300 annual limit
For ordinary employees, there is no annual limit on the number of trivial benefits they can receive, as long as each benefit meets the rules.
However, most small owner-managed companies are close companies.
For directors of close companies, there is an annual cap of £300 per tax year.
This means a director can receive up to £300 of qualifying trivial benefits in the tax year.
For example, this could be:
six gifts of £50; or
ten gifts of £30; or
a mixture of smaller gifts, as long as the total qualifying amount does not exceed £300.
The £300 limit is also strict.
If a benefit takes the director over the £300 cap, that benefit is taxable in full.
Step 6: Gifts to family members can count towards the director’s limit
This point is easy to miss.
If the company gives a gift to a member of the director’s family or household, it can count towards the director’s £300 annual limit.
For example:
The company gives a director a £40 birthday gift.
The company also gives the director’s spouse a £40 gift.
If the spouse is not an employee or director of the company, the second gift may still count towards the director’s £300 annual limit.
This is important for family companies, especially where gifts are provided to spouses or children.
Step 7: Keep records
Even though qualifying trivial benefits do not need to be reported on a P11D, the company should still keep records.
The records should show:
what was provided;
who received it;
the date;
the cost, including VAT;
why it was not a reward for work;
and that the £50 and £300 limits were not exceeded.
Good records are important if HMRC ever asks questions.
Tax-saving example
Let’s say a director wants to receive £300 of gifts during the tax year.
The director is a higher rate taxpayer, and the company has profits between £50,000 and £250,000, so the company’s marginal Corporation Tax rate is 26.5%.
Option 1: Take a dividend and buy the gifts personally
If the director takes dividends and then buys the gifts personally, they need enough money left after dividend tax.
To have £300 left after dividend tax at 35.75%, the company would need to pay a dividend of about £467.
The company does not get Corporation Tax relief on dividends.
So the cost to the company is £467.
Option 2: The company provides trivial benefits directly
Instead, the company provides £300 of qualifying trivial benefits.
The company spends £300.
It then receives Corporation Tax relief at 26.5%.
The Corporation Tax saving is:
£300 × 26.5% = £79.50
So the real cost to the company after Corporation Tax relief is:
£300 - £79.50 = £220.50
The director receives £300 of gifts, with no Income Tax or National Insurance, provided all the trivial benefit rules are met.
Comparing the two options
If the director takes a dividend and buys the gifts personally, the cost to the company is about £467.
If the company provides the gifts directly as qualifying trivial benefits, the cost after Corporation Tax relief is £220.50.
The director receives the same £300 value, but the company route can be much more tax efficient.
That is why trivial benefits are worth understanding.
Common mistakes to avoid
Small company directors should avoid:
treating the £50 limit as an allowance;
giving gifts that cost more than £50;
giving cash;
giving cash vouchers;
giving gifts as a reward for work or performance;
making trivial benefits part of an employment contract;
forgetting the £300 annual cap for close company directors;
ignoring gifts made to family or household members;
and failing to keep records.
Trivial benefits are not salary
Trivial benefits should not be used as disguised pay.
Regular £50 gifts given every month to the same director may attract questions, especially if there is no genuine reason for the gift.
The exemption is designed for small, occasional benefits.
It is not designed to replace salary, bonuses or dividends.
Final thoughts
Trivial benefits are small, but they can still be useful.
For many small limited company directors, the money is being spent anyway.
The question is whether it is being spent personally from after-tax income, or paid by the company in a tax-efficient way under the trivial benefits rules.
The key points are:
Each benefit must cost £50 or less.
It must not be cash or a cash voucher.
It must not be a reward for work.
It must not be contractual.
Close company directors have a £300 annual cap.
Used correctly, trivial benefits can be a simple way to reward directors and employees while keeping the company compliant and tax efficient.
At Busy Bee, we help small limited company owners stay compliant, tax efficient and in control of their business finances.
Disclaimer: The content on this page is for general information only and should not be treated as tax, legal or financial advice. Tax planning should always be reviewed against your individual circumstances before action is taken.
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