Tax Efficient Benefits for Employees

28 September 2022 Greg Benson View all News

Providing benefits to employees can be a complex area of taxation. Some benefits are fully taxable, whilst others can be tax free. Due to legislative complexity, we recommend seeking advice before providing employees with benefits. These could have adverse tax implications for them.

What are 'Trivial Benefits'?

There is a statutory exemption for employers for ‘trivial benefits’ provided to employees. A benefit is a trivial benefit if the cost of providing the benefit is not more than £50 (including VAT).

If the cost of providing the benefit exceeds £50, then the full cost to the employer will generally be taxable as a benefit in kind.

Conditions for Trivial Benefits

There are strict conditions that need to be met to qualify as a trivial benefit:

  • The benefit costs £50 or less to provide
  • The benefit is not cash or a cash voucher. This can include gift cards, but this condition is only met if any vouchers are not exchangeable for cash
  • The employee is not entitled to the benefit as part of their employment contract
  • The benefit is not a reward for their work or performance

If all these conditions are met, the benefit will be exempt from tax as employment income and you will not need to report them to HMRC.

Trivial benefit examples

HMRC guidance suggest that the following are examples of trivial benefits:

  • Buying an employee a birthday or Christmas gift
  • Flowers for the birth of a new baby
  • Taking a group of employees our for a meal to celebrate a birthday
  • Supermarket gift vouchers

There are further examples of these benefits on the HMRC website.

How could these benefits be used?

If the benefits meet the above criteria, they can be effective without the administrative burden of reporting them to HMRC.

This may benefit employees, particularly during the cost of living crisis, providing the benefit is not a reward for service.

Limits on trivial benefits

There is no limit on the number of trivial benefits that can be provided in a tax year. An exception is where benefits are being provided to a director in a close company. A close company is a company with 5 or fewer participants.

Where this is the case, then the annual amount cannot exceed £300.

This can therefore be an effective way to provide benefits to employees, without the need for reporting this to HMRC.

How can we help?

Shorts can review the current remuneration packages for employees and identify the way that benefits are provided to employees. We can also advise on more tax efficient ways to provide benefits to employees

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