Trivial Benefits Explained for Limited Company Directors

The term ‘trivial benefits’ is used by HMRC to describe certain small rewards received by employees and company directors that are exempt from tax and national insurance. If you give yourself or your staff cash or vouchers of a small value, the good news is that there is no need to declare these for tax purposes. This exemption allows employers to provide small incentives to their valued employees without any tax implications. In this article, we will cover all you need to know about trivial benefits as a limited company director. 

What is a trivial benefit?

A trivial benefit refers to a small one-off reward given by employers to employees, often as a goodwill gesture. Examples may include gift vouchers, flowers, or a bottle of wine, but can even include items such as tea and coffee. No tax or national insurance is paid on qualifying trivial benefits, but it is important to ensure that you stay within the rules defined by HMRC. 

Trivial benefits do not need to be declared, but only if they meet the strict criteria provided by HMRC. Any reward given in the form of cash or as a reward for good work performance will not meet the criteria to be considered a trivial benefit and, hence, will be taxable. 

Can I receive trivial benefits as a limited company director?

Yes, as a limited company director, there is nothing to stop you from receiving a trivial benefit from your company as long as you meet the criteria set out below and you are classed as an employee of the business. 

If you are a director of a ‘close’ company, i.e. one that has no more than 5 shareholders, you will be subject to a strict limit on how much you can receive in the form of trivial benefits. Specifically, directors of ‘close’ companies can only receive trivial benefits up to a maximum of £300 in the tax year. 

What is classed as a trivial benefit?

According to HMRC, in order for a benefit given to an employee (including limited company directors) and to be classed as trivial, it must:

• Cost £50 or less to provide
• Not be cash or a cash voucher
• Not be a reward for their work or performance
• Not be included in the terms of their employment contract

Any benefit that meets these criteria does not need to be declared to the HMRC, and no tax is payable. If you are unsure if a benefit meets these criteria, it is advisable to check with your accountant in the first instance.

Trivial benefit examples

There is no definitive list of trivial benefits, however, HMRC does provide some examples:

• Tea, coffee, or water from a cooling dispenser
• Repairs to employer-provided cycles – this exemption applies where an employee has sole use of an employer-provided cycle where the cost to the employer of each repair is £20 or less.
• Small gifts to employees – e.g. chocolates, flowers in recognition of an employee’s marriage or birth of a child
• Seasonal gifts – e.g. a turkey, bottle of wine or a box of chocolates at Christmas. 
• Seasonal flu immunisations – Seasonal flu jabs provided by employers to employees can be classed as a trivial benefit. 

What is not classed as a trivial benefit?

Anything that is a reward for work or performance or is provided for within the employee’s contract is not classed as a trivial benefit. Benefits that may not be classed as trivial include 

• Performance-related bonuses (e.g. for meeting a sales target)
• Gifts as rewards for work performance
• Cash or cash vouchers
• Items within the contract of the employee
• Rewards with a value that exceeds £50, and
• Salary sacrifice schemes – If the benefit is provided as part of a salary sacrifice arrangement, it’s not exempt from tax (see below for more details).

If you want to offer some form of trivial benefit to your employees, it is advisable to check with your accountant whether it may be taxable before you proceed. In some cases, it can be difficult to determine if a benefit would be taxable under this exemption. For example, if you reward members of staff by taking them out for lunch, the cost may be exempt from tax if it is not related to work performance. 

What if trivial benefits are paid as part of a salary sacrifice arrangement?

According to HMRC’s rules, if an employer provides trivial benefits as part of a salary sacrifice arrangement, they will not be exempt from taxation. In this case, the employer needs to ensure that they report on form P11D whichever amount is higher:

• The amount of salary given up
• How much was paid for the trivial benefits

Can a director of a ‘close’ company receive trivial benefits?

If you are a director of a ‘close’ company, you will not be eligible to receive trivial benefits worth more than £300 in a tax year. A close company is a limited company that is:

• Privately owned, and
• Run by 5 or fewer shareholders

For example, if, as a director of a close company, you receive the following in the same tax year:

Date	Benefit	Value
Jan 15	Bottle of wine	£25
Mar 1	Birthday flowers	£30
June 10	Afternoon tea voucher	£45
Dec 5	Christmas gift (non-cash)	£60

The total value is £160, and each benefit is under £50. No cash is given, and none of the benefits are performance-related. In this scenario, all items would be classed as trivial benefits and would not be taxable or reportable to HMRC.

Pros and cons of trivial benefits

Some of the main advantages and disadvantages of trivial benefits are as follows:

Pros	Cons
No income tax or national insurance is payable	Any benefit given with a value in excess of £50 is taxable
No PAYE or P11D reporting is required by HMRC	£300 annual cap for close company directors
Can make employees feel appreciated and motivated	No cash or cash vouchers – These are automatically taxable
Simple to administer compared to formal benefit schemes	Not performance-related – Cannot be given as a work reward
Not tied to employment contracts, so can be awarded as and when required	Easily misunderstood – Easy to unintentionally breach the rules

How are trivial benefits different from benefits in kind?

Trivial benefits are often confused with benefits-in-kind (BIK), but they are not the same. A BIK is anything of monetary value that an employer provides to an employee that is not ‘wholly, exclusively, and necessary’ for them to carry out their contractual obligations. As such, BIKs are a more traditional and formal benefit which must be reported to HMRC on a P11d form and require the payment of tax and national insurance. BIKs commonly include private healthcare, company cars, mobile phones, and gym memberships that cost in excess of £50. Trivial benefits differ from BIKs in that they have a smaller value and are given by the employer as a gesture of goodwill. 

Not all BIKs are taxable, however, including pension contributions and home office equipment. If you are unsure whether a benefit you have provided is a BIK or a trivial benefit, we recommend speaking to your accountant for clarification.

Pitfalls of trivial benefits

Employers sometimes fail to understand the rules around trivial benefits and, as a result, end up having to pay additional tax or related penalties. Most employers that fall foul of this exception do so because they don’t understand the rules around benefits for work performance. Here are some examples of how employers sometimes misinterpret the rules on trivial benefits:

Scenario	Why not exempt from tax?
Employer gives a gift card to an employee who hits a sales target	It is classed by HMRC as a reward for work performance
A bottle of wine is given for completing a big project	Again, this is considered a reward for work performance by HMRC
A voucher given for working overtime	Given in return for extra hours — reward for work done
Gift for employee of the month	The award tied to being top performer
Team lunch for completing a work-related deadline	Not considered trivial as linked to work performance
A bonus or gift awarded for client retention	Also performance-based.

The other most common pitfall relates to the rule on directors of ‘close’ companies. It is important to keep records to show that the total value of any trivial benefits received in the tax year does not exceed £300.

Final words

Trivial benefits may sound inconsequential in the grand scheme of things, but they can reduce your tax bill as a limited company director. In addition, they offer a great way to give a reward to a member of staff without having to pay additional tax. The key to using this HMRC tax exemption rule effectively is understanding the criteria that must be met and what constitutes a trivial benefit. By working closely with your company accountant, you can reduce your tax bill and that of your employees and encourage your staff members.