When employers provide small unexpected gifts to their employees, those items are only tax-free if they qualify as a trivial benefit. However, there is a lot of confusion about what constitutes as a trivial benefit as there are two cost points, and a special aggregation rule which only applies for directors and their families.
For ordinary employees who are not directors or part of the director’s family, all of the following conditions must be met for each item provided, to make it a tax-free and NIC-free trivial benefit:
- The cost to the employer of providing the item is no more than £50
- The benefit is not cash or a cash voucher
- The employee is not entitled to the benefit as part of any contractual obligation
- The benefit is not provided in recognition of particular services performed by the employee as part of their employment duties
Conditions 1 and 2 and easy to assess, but conditions 3 and 4 are not so obvious.
The employer promises to provide breakfast to those employees who agree to come in early to help with a monthly stock-take. That amounts to a reward for performing duties connected with the employment contract, so condition 4 is broken and the breakfast is not a trivial benefit.
On a hot day, the employer unexpectedly buys everyone in the office an ice-cream. Here, the ice-cream can be classified as a trivial benefit as the employees don’t have to do anything in order to receive the cool treat.
The number of trivial benefits provided to a particular member of staff in a single tax year is unlimited, but each item provided has to meet all of the four conditions above. You do not have to aggregate the cost of items provided to ordinary members of staff to test the total value for the tax year.
However, where trivial benefits are provided by a close company to a director of that company, or to a member of the director’s family or household, there is an annual cap on the value of items which can be treated as trivial benefits, which is £300 per tax year. This cap applies per person and per employer.
If there are several members of the same family who are all directors or employees of the close company, they each have a £300 cap on the trivial benefits they can receive in one year.
Where benefits are provided to members of the director’s family, the value of those benefits count towards the £300 cap if the family member is not an employee or director of the company.
There are other rules which may apply to make a benefit tax-free. For example, if the employer provides a taxi to take employees home after working late, that can be tax-free subject to strict parameters.
If all staff members are provided with free or subsidised meals at the workplace, the cost of those meals can be tax-free under the rules applying to a staff canteen.