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TLC Loves… tax breaks for trivial benefits

There’s a little-known way to reward directors and employees with vouchers that we discuss at our year-end meetings, known as trivial benefits. It’s effectively a way to reward directors and employees without them being taxed for it, so it’s a tax-efficient thing to do – and it’s also nice to treat people who work hard!

Here’s how it works…

Trivial benefits for directors and their family

Directors of a limited company, and members of the directors’ family or household, can receive up to £300 per director per tax year in trivial benefits. Probably the best way to do this is with vouchers, but to meet the criteria they must not be able to be exchanged for cash.

The vouchers must be awarded in £50 amounts (including VAT) and must not be something the director is entitled to as a result of any contractual obligation. If a benefit is provided to a family member of a director it counts towards the director’s annual exempt amount.

We have clients who use the benefits to save for holidays, Christmas presents, or just treat themselves.

Trivial benefits for employees

The rules are similar for employees but the benefit must not exceed £50 per employee on each occasion. There is no cap on the annual amount that can be awarded to employees, but we’d suggest you think about what’s reasonable in the context of your business.

The benefit must still not be cash or vouchers that can be exchanged for cash, so could also be something like the cost of a meal to celebrate team birthdays, a turkey at Christmas, or bottles of wine (to use the examples HMRC give).

Critically, the benefit cannot be provided as a result of something the person has achieved at work, so a voucher as a reward for hitting a target or winning a new client would not count as a trivial benefit and would therefore not be exempt from tax.

Combining exemptions

You could choose to use the trivial benefits exemption to pay for a staff Christmas party, but there is already an exemption for the costs of this kind of event (read more about that here). The trivial benefits exemption creates the opportunity to hold a second event – whether linked to Christmas or not – for staff, as long as the total spend doesn’t exceed an average of £50/employee.

We hope this quick explanation shows you what’s possible within the HMRC rules. As always, we’re happy to chat about your particular circumstances, so just give us a call if you aren’t certain about the right thing to do for your business.

 

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