From 6 April 2016, the UK government introduced a helpful tax rule known as the trivial benefits exemption. This allows employers to give small gifts or perks to their employees without these being subject to Income Tax or National Insurance contributions, provided certain conditions are met.
What Are Trivial Benefits?
Trivial benefits are small gifts or tokens of appreciation given to employees. They're meant to be occasional treats that brighten up the work environment, not a substitute for salary or a reward for work performance.
Conditions for the Exemption
For a benefit to qualify as a trivial benefit and be exempt from tax, it must meet all of the following conditions:
Cost Limit:
The cost of providing the benefit must be £50 or less per person, including VAT.
If the benefit exceeds £50, the entire amount becomes taxable. For example, a gift worth £60 would be fully taxable, not just the £10 over the limit.
Non-Cash Gifts:
The benefit cannot be cash or a cash voucher. It should be a tangible item or service that cannot be easily converted into cash.
No Salary Sacrifice or Contractual Obligation:
The benefit must not be provided as part of a salary sacrifice arrangement or under any contractual obligation. It should be a genuine gift, not something the employee is entitled to.
Not a Reward for Work or Performance:
The benefit must not be given in recognition of work done or to reward an employee's performance. It should be given without any conditions attached.
Applies to Former Employees:
The exemption also applies to trivial benefits provided to ex-employees.
Annual Cap for Directors and Office Holders
For directors, office holders, and their family members, there is an annual cap of £300 on the amount of trivial benefits they can receive tax-free. This means they can enjoy multiple trivial benefits throughout the tax year, as long as the total value does not exceed £300.
Example from HMRC Guidance
HM Revenue & Customs (HMRC) provided practical examples to clarify how the exemption works:
Regular Treats with Legitimate Expectation:
Suppose an employer gives employees a cream cake every Friday. There's no contractual obligation to provide the cakes, but employees have come to expect them. According to HMRC, this could mean there's a "legitimate expectation," which might affect whether the cakes qualify as trivial benefits. If the treats become a regular and expected part of employment, they may no longer be considered trivial.
Why Is This Important?
The trivial benefits exemption simplifies tax rules for small perks, making it easier for employers to:
Show appreciation to their staff with small gifts.
Improve staff morale without worrying about additional tax liabilities.
Avoid the administrative burden of reporting minor benefits.
For employees, it means enjoying small perks without any tax implications.
Key Takeaways
Stick to the £50 limit: Ensure each trivial benefit doesn't exceed £50 per person.
Avoid cash or cash vouchers: Gifts should be items or services, not money.
Keep it casual: Benefits should be spontaneous gestures, not contractual obligations or rewards for work.
Mind the annual cap if you're a director: Don't exceed £300 in trivial benefits per tax year.
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