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It is common for employers to want to provide their employees with gifts or perks during the year. Less welcome, however, is when we tell them that the gift is subject to tax on the employee.

From April 2016, legislation was introduced to provide more certainty in this area, with a prescribed exemption for trivial benefits Previously there was no statutory provision, however, HMRC did have guidance allowing certain trivial benefits without specifying an actual value. A benefit twill now only be treated as ‘trivial’ if it meets all of the following conditions:

• the cost of providing the benefit must not exceed £50; 
• the benefit cannot be cash or a cash voucher (but high street vouchers are fine); 
• the employee should not be entitled to the benefit contractually (including salary sacrifice); and
• the benefit must not be in recognition of services performed by the employee as part of their employment.

If all of the above conditions are satisfied the benefit will not count towards an employee’s taxable income and does not need to be reported on a P11D.

If the benefit exceeds £50, the whole amount is taxed, not just the excess. 

Interaction with other exemptions  

The guidance states that where there is more than one potential exemption, the outcome most favourable to the employee should be applied. Any staff entertaining events below £50 per head could therefore be treated under the trivial benefits exemption and any larger events may qualify under the £150 annual parties and functions exemption. 

This flexibility potentially gives employers the opportunity to provide its employee with more perks and benefits than ever before without triggering a tax charge on the employee.

Annual cap for directors 

Directors of close companies (broadly a company with five or fewer shareholders or where all of the shareholders are also directors) can receive benefits totalling a maximum of £300 in any given year. This can be made up of multiple benefits providing each is below £50. 

For example, if the director has received £270 of trivial benefits during the year and then receives a £50 high street voucher, this benefit would not be exempt. However, if before the year end they then received a £30 bottle of wine, this could be treated as trivial and take their benefit up to £300. If gifts are made to family members of the director (who are not employees or directors of the company) then any trivial gifts provided would count towards the directors £300 limit. 

Rather generously, there is no similar cap for other employees and they can receive any number of trivial benefits during the year

Trivial or not?

Some of the more common benefits have been set out below and circumstances where they may or may not qualify as a trivial benefit 

Too good to be true? The new rules do appear to be extremely generous and offer employers the opportunity to provide their employees with perks, without the negative tax implications. We would not be surprised if HMRC tighten the rules in the future or impose further annual limits, so you may want to seize the opportunity to treat your employees now.