Trivial Benefits: Small Perks, Big Impact
Employers can provide qualifying trivial benefits tax-free without the hassle of reporting requirements. Here’s what you need to know:
- Annual Cap: Directors and office-holders in close companies can receive up to £300 in trivial benefits per tax year: there is no limit for employees.
- Cost Limit: Each benefit must not exceed £50 (VAT inclusive) per employee.
- Exclusions: Cash or cash vouchers and gifts given pursuant to salary sacrifice, contractual obligations or in recognition for services performed are not eligible.
- Common Examples: Christmas hampers, chocolates or celebratory flowers.
Qualifying gifts do not suffer from income tax or national insurance and the cost is tax deductible for the employer. For VAT purposes, the rules affecting business gifts of goods apply so that if input tax was claimed on purchase, output tax will need to be accounted for to HMRC if the VAT exclusive cost of a gift made in any 12 month period exceeds £50.
It is HMRC’s view that trivial benefits provided on a regular basis may lead to a ‘legitimate expectation’ among employees, possibly classifying them as contractual, so it would be prudent to vary the type of gift and when they are given.
Annual Parties & Events: Celebrate in Style, Tax Free!
Annual social functions, such as a Christmas party or summer barbecue, are great ways to enhance workplace culture. Fortunately, these events can also be exempt from tax and national insurance provided that specific criteria are met in a tax year:
- Event Type: Must be an annual function.
- Eligibility: Open to all employees, either at a single location or across the entire business.
- Cost Limit: Total cost per attendee, which can include employees and employees’ guests, must not exceed £150 (VAT inclusive) for the tax year, not per event.
All costs related to the event, such as transport, drinks, accommodation and VAT, must be included when determining whether the £150 limit has been exceeded. The £150 limit is an all or nothing exemption. If the cost exceeds £150 per attendee, consider a PAYE Settlement Agreement (PSA) to manage tax liabilities for employees. More than one event will require careful budgeting.
Don’t forget the growing trend of virtual events, which also qualify for the exemption, and allow for flexibility in the way you engage your team.
For VAT purposes, VAT incurred on employees is recoverable for a fully taxable business.
If you have any queries on the information contained in this article or would like assistance please contact your usual advisor on 01633 810081 or email info@kilsbywiliams.com.
