What contractors need to know about trivial benefits

The idea of ‘Trivial Benefits’ was introduced as part of a 2016 simplification of the tax system, following a recommendation by the OTS.

Benefits provided by an employer to an employee that qualify as ‘Trivial’ are not taxable and do not need to be reported to HMRC, writes Graham Jenner, co-founder of chartered accountants Jenner & Co.

What qualifies as a Trivial Benefit?

To qualify as a Trivial Benefit, all of the following must apply:

• it cost the employer £50 or less to provide
• it isn’t cash or a cash voucher
• it isn’t a reward for the employee’s work or performance
• it isn’t in the terms of the employee’s contract

The £50 limit relates to each benefit provided. As a result, a number of benefits could be provided in a year and all qualify as trivial benefits, provided each is within the above criteria.

If a benefit costs more than £50, then it is not a trivial benefit and so the full amount (not just the excess over £50), is taxable.

What HMRC says about Trivial Benefits

HMRC envisages this covering such benefits as:

• taking a group of employees out for a meal to celebrate a birthday;
• buying each employee a Christmas present or birthday present;
• flowers on the birth of a new baby;
• a summer garden party for employees.

(Again, provided that the cost per employee above is less than £50)

Although a contractor limited company usually has only 1 or maybe 2 employees, the rules can also apply where the company provides that director/employee with Trivial Benefits.

The £300 cap

But HMRC guidance here and here confirms that the tax authority is aware that those running their own company might be tempted to provide themselves with a large number of Trivial Benefits! Therefore, be aware of a £300 overall limit per tax year (applicable where the company has five or fewer shareholders).  Nevertheless, that is still £300 of benefits that could be provided, on which no tax or national insurance is payable.

Mentioned at the outset, a cash voucher is one that can be exchanged for cash. Fortunately, most gift cards and gift vouchers are not exchangeable for cash and so do not fall foul of the criteria prohibiting ‘cash vouchers.’ Gift cards for a national supermarket, for example, are not gift vouchers, even though they can be exchanged for virtually any goods that the supermarket sells.

Exclusions

Penultimately, it must be borne in mind that the benefit cannot be a reward for the employee’s work or performance – which would exclude a benefit provided as a bonus for doing a good job. 

You will note that the examples outlined by HMRC (above) relate mainly to marking an event that is not work-related.

So, taking a group of employees out for a meal to celebrate a birthday qualifies, but would not qualify if, instead of a birthday, it was as a reward for securing a deal.

Savings of between £75 and £135

In conclusion, while the Trivial Benefits exemption provides some scope for contractors with their own limited company, to provide themselves with tax free benefits from the company, the amounts involved are, as might be expected, ‘trivial’. The maximum saving per year, compared to the company paying a dividend (and you paying for the benefits yourself), is about £75 for a basic rate tax payer and £135 for a higher rate tax payer. Small and not always significant sums, but still significant enough -- in our view -- for contractors to ask their contractor accountant about if unsure. For the unrepresented however, HMRC guidance on the issue here provides a basic starting point, with further details in its Employment Income Manual, here and here, but notably for those who prefer heavier reading.