You don’t have to pay tax on a benefit for your employee if all of the following apply:
1. it cost you £50 or less to provide
2. it isn’t cash or a cash voucher
3. it isn’t a reward for their work or performance
4. it isn’t in the terms of their contract
This is known as a ‘trivial benefit’. You don’t need to pay tax or National Insurance or let HM Revenue and Customs (HMRC) know.
You have to pay tax on any benefits that don’t meet all these criteria.
Directors of ‘close’ companies
You can’t receive trivial benefits worth more than £300 in a tax year if you’re the director of a ‘close’ company.
A close company is a limited company that’s run by 5 or fewer shareholders.
Problem areas and points to note
- There is no limit on how many trivial benefits you give to employees
- Store Gift Cards that can’t be exchanged for cash are acceptable
- Birthdays, anniversaries, Christmas, New Year, and basically any special occasion not work related are great for trivial benefits
- Avoid it be part of a continuation of the same benefit as described below
Employer D gives an employee a gift card, which costs the employer £10 to provide. The employer tops up the employee’s gift card on 7 further occasions, at a cost of £10 for each occasion. Although the benefit to the employee is topped up on separate occasions there is a single benefit of the provision of a gift card. The total cost to the employer for providing the benefit over the period of employment is £80 and therefore this benefit is not exempt as a trivial benefit. https://www.gov.uk/hmrc-internal-manuals/employment-income-manual/eim21865
Annual Parties and Functions
Annual parties at Christmas or alternative functions of a similar nature, such as an annual dinner dance, which are open to staff generally and which cost no more than £150 per head to provide. Where there’s more than one annual function and their total cost per head exceeds £150, only the functions that total £150 or less will not be taxed. Please note that the figure of £150 quoted is not an annual allowance and the criteria set out at Section 264 ITEPA 2003 must be satisfied to meet the exemption. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/785476/480_2019_Expenses_benefits.pdf.pdf
Gifts from Third Parties
Certain gifts received by an employee if all the following conditions are satisfied, the:
• gift consists of goods or a voucher or token only capable of being used to obtain goods
• person making the gift is not the employer or a person connected with the employer
• gift is not made either in recognition of the performance of particular services in the course of the employment or in anticipation of particular services which are to be performed
• gift has not been directly or indirectly procured by the employer or by a person connected with the employer
• gift cost the donor £250 or less
• total cost of all gifts made by the same donor to the employee, or to members of the employee’s family or household, during the Income Tax year is £250 or less