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Trivial benefits: Far from trivial

24th Oct 2016
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Tim Good explains how the new exemption for trivial benefits works, and why you should be telling your clients about this.

Myth and rumour

During our recent Finance Act lectures Mark, Giles and I have had a number of discussions around the country with delegates who want to know how far their clients can go with the new trivial benefits exemption. It’s very easy for Chinese whispers to generate considerable misunderstanding of what we can and cannot do under the new legislation [ITEPA 2003, s 323A]. It’s also helpful that HMRC has published draft guidance that goes into considerable detail and includes a number of examples.

Basic rules

The basic rule is that an employer can now provide trivial benefits such as a bunch of flowers, a box of chocolates, a meal out, without having to put it on the P11D and without any tax or national insurance for either employer or employee. The employer will also be entitled to claim income tax or corporation tax relief on the cost.

There are three key conditions:

  • the trivial benefit must cost no more than £50
  • the benefit must not be a reward for services or in any way contractual
  • the benefit must not be cash or a cash voucher

Examples

The examples given in the HMRC draft guidance are, for the most part, sensible and very helpful.

Example A

Employer A takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill you should accept that the cost per head is £48, reflecting an average amount of £240/5. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.

No limits

The legislation does not impose a limit on the number of trivial benefits that an employer can provide. One course delegate suggested during a discussion on this point that based on the different examples given in the guidance an employee could potentially clock up £12,500 a year of tax free benefits. This would equate to a £50 benefit on each of 250 working days in the year. In my book such a such a scheme would fall foul of the reward for services rule.

Context

Suppose I pop into Lidl every so often and buy four £30 bottles of champagne to give to each of my employees. If I take them into the office and say “Hey guys – we’re hitting great delegate numbers on the 2017 courses programme so here’s a bottle of champagne”. That would be a reward for services and so would be taxable and NICable. But if I were to say “The sun is out, the sky is blue – I’m in a good mood and this is for you!” – then the champagne would be a trivial benefit.

Directors

Once we’ve explained the rules in the lecture room we are invariably asked whether director/shareholders can enjoy trivial benefits themselves, and the answer is “Yes!”.

But HMRC knows what directors can be like, so the legislation imposes an annual cap of £300 on exempt trivial benefits provided to a director or office-holder of a close company (including benefits provided to members of their family or household). Here is my favourite example from the HMRC guidance:

Example O

Company O gives bottles of wine each costing £30 to a director, to his wife who is a former director, and to their daughter on their birthdays. The daughter is not an employee or office holder of Company O, so the cost of her bottle of wine is apportioned between her father (a current director) and her mother (a former director). In respect of the daughter’s gift, £15 (£30/2) is allocated against the father’s annual exempt amount. The balance is allocated against the mother’s annual exempt amount under the amended employer-financed retirement benefits (EFRBS) regulations 2011 (Note: this amendment is has yet to be passed).

Brilliant, so much in just one example!

Gift cards

I plan to use the company credit card to buy 12 gift cards with £50 credit on each of them. Over the next few months I will occasionally give one of these to myself and one to the present Mrs Good (who is also a director of the company). These gift cards cannot be exchanged for cash.

How much will we save? Well each of us would have to pay £126 tax and NI on £300 of extra salary (assuming each is in higher rate bracket) and the company would pay £41 of secondary class 1 NIC. So between us we will save £335.

Worth doing? Ask your clients.

See Tim Good, Giles Mooney and Mark Ward speaking on the PTP Limited 2017 courses programme running in 14 venues across the UK including Cambridge, Leeds, Watford and Edinburgh.

Replies (39)

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By unclejonny
25th Oct 2016 11:08

Tim, you say that the benefit must not be cash or a cash voucher but you refer to the example at the end saying buying gift cards.
Surely a gift card is the same as a voucher or am I missing something?

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Replying to unclejonny:
By JimH
25th Oct 2016 11:15

In my example, I understand that a bike shop voucher of no more than £50 would be deductible and not taxable.

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By JimH
25th Oct 2016 11:13

Yep. This has been a happy sweetener when director clients have asked about the company paying for their gym membership or flights and entry to a cycle challenge event. As one who dislikes frequently pointing out tax cost consequences, it is good to be able to soften the message with 'but there is a way the company could contribute to all that lycra cost.'

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By chatman
25th Oct 2016 11:33

I was always told it was bad form to refer to one's partner as "the present Mrs xxxx" but if Tim can do it, it's good enough for me.

Good article. Thanks.

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By keith mcmanus
25th Oct 2016 20:18

Excellent and practical article Tim, many thanks.

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Tim Good profile image
By Tim Good
21st Nov 2016 17:27

I hadn't realised this had been published - hence a rather late reply to unclejonny!
Whatever the employee is given must not be convertible into cash. A John Lewis gift voucher used to be available and if you used a £50 voucher to buy something for £45 they would give you £5 change. But you can now only buy John Lewis gift cards and if you have £50 on a card and spend £45 they give the card back with £5 left on it - so not convertible into cash.

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Replying to Tim Good:
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By darenas36
03rd Aug 2017 12:35

Hi all,

can I buy 1 gift card of £100 for 2 staff members (husband - director & wife - ltd secretary) or I have to buy two separate gift card for each employee using ltd company card? Thanks in advance

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By nick farrow
02nd Aug 2017 12:55

i just listened to HMRC webinar on employee entertaining - no mention of this supremely practical solution

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Replying to nick farrow:
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By darenas36
04th Aug 2017 12:04

nick farrow wrote:

i just listened to HMRC webinar on employee entertaining - no mention of this supremely practical solution

Hello,

Can ltd company director using company card buy 1 gift card worth or £100 for 2 employees (husband - ltd director and wife - ltd secretary) to claim it as trivial benefit or should buy 2 separate cards of £50. Thanks in advance.

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By [email protected]
09th Aug 2017 13:42

Tim, great article about something that seems so poorly covered anywhere else! We've just been speaking to a private GP service provider that charges £29 per appointment and it seems that an employer paying for these as and when employees need them would fit into these trivial benefit rules. As most of the HMRC guidance considers gifts and entertaining, do you/anyone else see an issue with paying for things like medical expenses?

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By snickersinatwix
10th Aug 2017 08:51

One of my clients has just emailed me to say he wants to take £300 per year in non cash vouchers - his is a one man limited company with no other employees. While I accept that there is probably no BIK under the trivial benefit rules (assuming he sticks to the guidance), do you think HMRC could deny a deduction in the corporation tax computations as this cost is not wholly and exclusively for the company?

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Replying to snickersinatwix:
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By Cheshire
30th Oct 2017 10:30

Hi
Did you get an answer to this one outside of he forum (as I can see no responses on here)?

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Replying to Cheshire:
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By snickersinatwix
30th Oct 2017 11:48

No, and I am still very worried about directors taking trivial benefits in this way for this reason.

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By annmd
08th Oct 2017 18:23

A very good article Tim, thank you.

Would anyone here be able to confirm if fuel purchased by the director/employee to the amount of £50 could be treated as a trivial benefit?

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Tim Good profile image
By Tim Good
09th Oct 2017 11:44

This would be ok if the employer were to give vouchers that could be redeemed at a petol station for fuel, but it might otherwise be difficult to arrange within the legislation.

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Replying to Tim Good:
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By andrew1211
26th Jun 2018 15:07

Hi, why is this the case? If the director goes to the petrol station, spends £50 on fuel via a company credit card, and keeps the receipt....surely this could qualify, couldn't it? There was never any cash element involved here.....

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By backintopractice
09th Oct 2017 15:05

Hi,
Does anyone know if input VAT can be reclaimed on the say birthday meal for employee or director trivial benefit?
Thanks.

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By JamesBroom
09th Oct 2017 16:57

Tim
I hope you are still reading this thread. A client is in the middle of an HMRC PAYE compliance visit, and the Officer is insisting that, whilst there is no tax on the non-cash vouchers (as they are trivial), the employee is liable to Class 1 NI. This is because the vouchers are not NI exempt vouchers (e.g. Child Care, Suggestion awards). Have you come across this before?

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Replying to JamesBroom:
Tim Good profile image
By Tim Good
10th Oct 2017 09:01

Refer the officer to sub-paragraph (da) to paragraph 6 of Part 5 of Schedule 3 to the Contributions Regulations, which provides that any payment which is exempted from income tax under section 323A of the Income Tax (Earnings and Pensions) Act 2003 (c 1) (“ITEPA”) will also be disregarded for the purposes of calculating an individual's earnings for NICs. Section 323A was inserted into ITEPA by section 13 of the Finance Act 2016 (c 24).

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Replying to Tim Good:
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By JamesBroom
19th Oct 2017 08:52

Tim, thank you. That is brilliant!

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By jan.wolfsbergen
18th Oct 2017 16:17

Hi Tim
Just seen you are still keeping up with this thread.
Whist I understand the Trivial Benefit rules for employees I can find no reference to the employer side of the costs for a partnership (or sole trader), eg, if a partner takes out his team, say 1 partner and 5 staff, for a birthday celebration and the cost is £20 a head, there is no benefit to the staff but should the £20 relating to the partner be disallowed in the tax comp? I have always added this back in the past where the staff have been taxable as part of a PSA but now with the trivial benefit I wonder if that is still the case. I've just started my LLP comp and trying to decide what to do.
Thanks

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Replying to jan.wolfsbergen:
Tim Good profile image
By Tim Good
19th Oct 2017 11:23

Yes - we must still add back the disallowed expenses for the partner (unless the cost meets the usual wholly and exclusively test). The trivial benefits exemption hasn't changed the deductibility rules.

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By jan.wolfsbergen
19th Oct 2017 11:37

Thanks Tim
Thought that would be the case but nice to know for sure.
Jan

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By josh1000
26th Oct 2017 16:38

Hi Tim,
Thank you for this helpful article. I have a concern about your suggestion to buy 12 x £50 gift cards in one go and occasionally give one to the directors (up to £300 each).
Isn't there is a danger this could be treated as one gift of £300 each paid in instalments?

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Replying to josh1000:
Tim Good profile image
By Tim Good
30th Oct 2017 12:07

Yes - there is a danger. Maybe the company should hold a stock of gift cards and dole them out periodically. The defence would be that at the point of purchase the gift cards have not been provided as a trivial benefit to any employee or director.

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By Cheshire
30th Oct 2017 13:01

Hi Tim
Would you be able to include your thoughts as raised by Snickersinatwist as to the position for close company sole director/no employees using this option? My thoughts are that this will be ruled out but would really appreciate the opinion of a more qualified member.
TIA

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Replying to Cheshire:
Tim Good profile image
By Tim Good
30th Oct 2017 16:14

If the sole director company provides the director with exempt childcare vouchers or a mobile phone contract then I think we would be content to treat them as exempt and deductible for corporation tax as part of director's remuneration. The same should apply to trivial benefits. HMRC could always raise the not W&E argument, but it would be difficult to distinguish exmpt benefits from other forms of director's remuneration for a sole director company (IMO).

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Replying to Tim Good:
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By Cheshire
30th Oct 2017 17:03

Tim Good wrote:

If the sole director company provides the director with exempt childcare vouchers or a mobile phone contract then I think we would be content to treat them as exempt and deductible for corporation tax as part of director's remuneration. The same should apply to trivial benefits. HMRC could always raise the not W&E argument, but it would be difficult to distinguish exmpt benefits from other forms of director's remuneration for a sole director company (IMO).


Thank you Tim, food for though certainly. Very much appreciated
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By holmesandco
05th Dec 2017 11:23

Where someone is a director of more than one company is there an overall restriction of £300, per annum? or any other sum?

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Replying to holmesandco:
Tim Good profile image
By Tim Good
05th Dec 2017 19:24

The £300 annual limit for close company directors is in s323B ITEPA 2003 and is determined for "an employee of an employer". So, in my opinion, each employer can provide up to the £300 limit for close company directors.
In short, maximum of £300 from each close company of which an individual is a director.

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By Stephentownley
09th Dec 2017 09:13

Is the trivial benefit limit of £300 to directors separate from the £150 limit for staff party?

In addition, is costs of a directors meeting separate from both the above?
Cheers
Steve

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By Gizzmo
02nd Jan 2018 17:56

Great explanation Tim. I have one question - which section of the ct600 should Trivial benefits be accounted under?
Thanks

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Replying to Gizzmo:
Tim Good profile image
By Tim Good
02nd Jan 2018 18:14

I would simply include the cost in the accounts in the same way as other employee and director costs.

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By Cubesurvivor
27th Feb 2018 17:08

Hi Tim

Hope I am not too late to drop in a query. In relation to a company that isn't close, if benefits were provided to an employee and family members should we consider whether the £50 limit has been exceeded by totalling the cost up and considering in relation to the employee or, as the legislation refers to "persons" rather than "employees", if the cost for each person who enjoyed the benefit is below £50 the exemption applies such as you would with S264 and annual functions?

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By Cubesurvivor
27th Feb 2018 17:08

Hi Tim

Hope I am not too late to drop in a query. In relation to a company that isn't close, if benefits were provided to an employee and family members should we consider whether the £50 limit has been exceeded by totalling the cost up and considering in relation to the employee or, as the legislation refers to "persons" rather than "employees", if the cost for each person who enjoyed the benefit is below £50 the exemption applies such as you would with S264 and annual functions?

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Replying to Cubesurvivor:
Tim Good profile image
By Tim Good
02nd Mar 2018 11:13

The latter.

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By andrew1211
26th Jun 2018 15:18

Another thought on this is there are now websites (e.g. Zeek) where you can sell gift cards and such like for less than face value for cash which I assume has escaped the notice of HMRC (for now).

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By cloudconcepts
26th Mar 2019 11:11

A bit late to the party here. We all love a trivial benefit, but what do you call them in the P&L? Simply 'Trivial Benefits'? Or something maybe a little more vague?

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Replying to cloudconcepts:
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By andrew1211
26th Mar 2019 11:46

Probably a form of employment cost

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