Are you a business owner who gives employees gifts and benefits to celebrate birthdays or other special occasions? Before the new rules on trivial benefits came into effect in 2016, you would normally have had to pay national insurance on gifts to employees, and your employees themselves would have also paid income tax on their gift.
However, things have changed. The exemption for trivial benefits could now potentially save you tax. For a benefit to be a tax and national insurance free expense, it must comply with a number of rules.
- The benefit must not cost the employer more than £50. If the benefit costs more than £50, the whole amount will be taxable as a P11D benefit.
- It must not be given as a reward for an employee’s work or performance
- The employee must not be entitled to the benefit as part of their contract
- The trivial benefit must not be cash or a cash voucher
- If trivial benefits are given to the director of a close company, the benefit must not come to more than a total of £300 in the year (e.g. 6 x £50 gifts).
What counts as a trivial benefit?
Trivial benefits are usually things like meals out, staff parties and gifts given to employees for special occasions such as birthdays, weddings, Christmas etc. It should be remembered that any benefits given must not be a reward for a job well done.
There is also a separate annual allowance for staff social functions and parties. There are rules for this too. If the party is available for every employee to attend, it’s an annual event and it costs no more than £150 per head, then there is no tax or national insurance to pay. The trivial benefits exemption means staff entertaining that falls out with the rules of annual staff social functions and parties can be claimed as a tax-free expense, if it complies with the rules for trivial benefits. For example, you could hold an annual staff party at £150 per head and also treat employees throughout the year to additional social events up to £50.
Benefit to employers
Employers who often give their staff gifts or spend more than the annual limit for staff social functions and parties will save tax on giving their employees benefits as they are exempt from tax and national insurance contributions. As a director, you can also treat yourself through the company every so often, with no tax to pay, as long as the rules above are met. The exemption means that employees will also have no tax to pay. Previously a P11D form would need to be submitted, with details of benefits and the employee would pay income tax. This is now not the case and any benefits that follow the above rules are tax free to employees.
Peace of mind
If you are unsure of what expenses you can claim or what benefits you can give to your employees, get in touch! At Rosslyn Associates, we give you peace of mind. You can rely on our experienced accounts and tax experts to ensure you never pay more tax than you should. For more information call the office on 0131 445 1825 or email firstname.lastname@example.org and one of our team will be happy to help!