December 12, 2016 at 9:15 AM
By Sarah Eble
Employers have the opportunity to be more generous this Christmas, thanks to new rules from HMRC that allow an employer to give a Trivial Benefit to an employee without having to report it on a P11d, or having the usual personal tax or National Insurance implications.
What is a Trivial Benefit?
Each item must cost less than £50 per employee, but cannot be a reward for services, contractual in any way, or be cash (or a cash voucher).
"Lunch is on us" - Example 1
John is an ex-employee who comes back to visit his ex-colleagues. 10 people go out to lunch to reminisce. The meal costs £450 in total and the employer pays. This is covered by the Trivial Benefits exemption because it is not a reward for services and the cost per head (£45) is below the £50 limit.
"Champagne for everyone" - Example 2
Karen comes into work with a £40 bottle of champagne for each of her employees. Karen has purchased these because she is having a good day and wants to give her employees a treat. These would be covered by the Trivial Benefits exemption as each bottle is below £50 and not a reward for services.
Points to note
- If Karen bought the champagne and said as she handed it out ‘Well done. We met last month’s targets, let’s celebrate’, technically this would not be covered by the Trivial Benefits exemption because it is considered a reward for services
- There is no limit on the amount of Trivial Benefits that an employee can receive in a year, but if they become very regular, HMRC may argue that they are a reward for services
- If the individual benefit exceeds £50, then the whole amount becomes taxable, not just the amount over £50
- Directors are eligible for Trivial Benefit exemption, but they are subject to a limit of £300 per year (a £300 total limit for them and any family members that also receive a benefit). This could be 6 x £50 or 300 x £1
- The new exemption applies to the tax that employees would pay on a benefit in kind. For the amount to be a corporation tax deduction it will still need to be wholly & exclusively for the business and used to boost staff morale
What about Christmas parties? What are the rules?
There is also an annual exemption of £150 per employee per year that can be used against the costs of annual events such as a Christmas or summer party. The £150 is per head of each employee who actually attends the event.
- 30 employees attend a Christmas party which cost the business £4,000. There were no other events in the year. Cost per head is £133, so this will all be exempt
- However, if 30 employees attend a Christmas party that costs £5,000, the cost per head would be £166. As the whole amount is above £150 there will be no exemption
What happens if you hold 2 team events in the year?
- Let's say the summer party cost £2,500 and 20 people attended, and the Christmas party cost £3,500 and 40 attended.
- Cost per head: Summer party = £125. Christmas party = £87.50
- The £125 will be exempt. However, all of the £87.50 will be a taxable benefit for the employee
Like to know more?
Call Sarah Eble in Wow’s Tax Team: 0845 201 1580 or email@example.com