Many small business owners are often looking at tax efficient ways to get money out of their company, or to provide small rewards to employees in a tax efficient way.
HMRC recognise that for small items, it is often not practical or efficient to collect the small amount of tax that would result. There can also be times where it would simply be awkward or inappropriate to tax a small item, for example flowers for an employee to mark a special birthday celebration.
As a result, there are special tax rules for “Trivial Benefits” laid down by HMRC.
What are the rules to ensure no tax is due?
Tax or National Insurance is not due on benefits provided to an employee as long as that benefit:
- Isn’t cash or a voucher exchangeable for cash; and
- Isn’t a reward for their work or performance, such as for meeting a target; and
- Isn’t in the terms of their contract; and
- It costs the employer £50 or less.
In the case of directors, there is a limit of £300 per tax year where the company is ‘close’. This normally is where there are five or fewer shareholders. There is no limit for other employees as long as the conditions above are met.
So what might be covered by this exemption?
There are of course many gifts that would be included within this and many associated occasions where an employer may wish to reward employees, for example:
- Flowers to celebrate a special birthday.
- A John Lewis voucher (or other voucher not exchangeable for cash) to say thank you to an employee for assisting with the maintenance of the company flower patch.
- The gift of a Turkey to employees at Christmas time.
- A staff summer BBQ.
When won’t these gifts be tax free?
These gifts are not tax free if:
- They are made as part of a salary sacrifice arrangement
- They are contractual or in return for work
- They are cash or equivalent (cheque, money order, payment in gold, or listed shares etc)
Importantly, if the £50 limit is exceeded, the whole amount becomes liable and tax and NIC, it is not a £50 deduction.
What is the process for making such gifts or benefits?
Employers can simply provide trivial benefits without needing to action anything, tell HMRC or complete any form of notification. It is usually best to keep a record of what gifts were made to which employees, so it could be demonstrated that the conditions are met. It should also prevent benefits to directors from exceeding the maximum £300 limit.
For more information on tax saving ideas for your business, contact Wisteria’s tax team on 0220 8429 9080.