An extra £300 tax-free for directors and employees - "Trivial Benefits"

Beata, the director of a rapidly growing company, approached me with an unusual query. She asked about the possibility of using "trivial benefits" without tax implications.

Beata decided on an additional subscription to access my services as a tax advisor, which complements her collaboration with her current accountants.

I explained to Beata that the essence of these benefits is to allow employers to give small gifts to their employees, provided that the cost of a single benefit does not exceed £50. For directors, such "small benefits" are limited to a total value of £300 per tax year. I suggested that she could purchase £50 store vouchers (e.g., Amazon) that the company could give to directors every two months to avoid exceeding the established limits.

The truth about "trivial benefits"

Beata had heard, however, that if such benefits are given regularly, they might be considered part of an employment contract and thus might no longer be exempt. In our conversation, I explained to her that, according to regulations, a benefit will not be tax-exempt if it is part of an employment contract, is paid in cash, constitutes part of the salary, or is awarded for specific services performed as part of the job.

Tax exemption for "trivial benefits"

During our discussion, I emphasized that, according to HMRC, regularly providing benefits could be considered a customary element of remuneration, making them part of contractual pay. However, HMRC guidance also acknowledges that the exemption can apply to Christmas and birthday gifts, which seemed somewhat contradictory.

I provided Beata with practical advice:

tax law and HMRC publications suggest that regularly providing small benefits to directors, such as £50 vouchers, even six times a year, remains compliant with current regulations.

Furthermore, the specifics of tax law require that directors' remuneration, including all benefits, be confirmed and approved annually by the board and shareholders, which prevents them from being considered a regular part of remuneration.

In summary, I reassured Beata that, in her case, due to current regulations and HMRC interpretations, utilizing the "trivial benefits" exemption remains a safe practice, and moreover, there was still an opportunity to use this option in the 2022/23 tax year. This was good news for Beata, opening up new perspectives for her company's tax optimization.

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