If you’ve ever given out birthday or Christmas presents to employees, you might think that it just shows what a nice person you are. But, sadly, the tax authorities define those as ‘trivial’ benefits (which is a bit rude). And can also judge on whether they are taxable (even ruder).
Trivial benefits are small, relatively inexpensive items or services provided by employers to their employees. They’re typically seen as perks or gestures of goodwill rather than substantial forms of compensation. They might include things like gift vouchers, small gifts, meals or snack, subsidised parking or tickets to events or concerts.
While these benefits might seem insignificant, they can have tax implications. In the UK, there’s a threshold of £50, below which trivial benefits are tax-free.
If an employer provides benefits exceeding the trivial benefit threshold, the total value of all benefits becomes taxable. To be clear: this includes both the benefits that fall within the threshold and those that exceed it. The tax liability is typically borne by the employee, who will have to pay income tax and NICs on the taxable value of the benefits.
Employers are generally required to report the value of all benefits provided to employees, including trivial benefits. This information is used to calculate the employee’s taxable income and determine the appropriate tax and NIC liabilities.
There are several ways to report trivial benefits to HMRC, including:
- P11D forms: For benefits exceeding the trivial benefit threshold, employers must submit a P11D form for each employee. This form details the value of all taxable benefits provided during the tax year.
- PAYE Settlement Agreement (PSA): For benefits below the trivial benefit threshold but above £200 per employee per tax year, employers can use a PSA to report the total value of these benefits.
- Real Time Information (RTI): Some benefits may need to be reported through RTI, particularly if they are paid as salary or wages.
To minimise tax liabilities associated with trivial benefits, employers should:
- Stay within the threshold: Pretty obvious: ensure that the value of benefits provided to each employee does not exceed the trivial benefit threshold.
- Track benefits: Maintain accurate records of all benefits provided to employees, including their value and the date they were given.
- Consider alternative benefits: Explore alternative forms of compensation that are not subject to tax, such as salary increases or pension contributions.
So, while trivial benefits can be a valuable tool for attracting and retaining employees, it’s essential to be aware of their tax implications. We can help you track the benefits and warn you when your generosity is going to start causing problems.
So get in touch and let’s make sure trivial benefits don’t cause major problems.
