Trivial benefits are not trivial at all, according to research. Such benefits – which are small, inexpensive perks for employees – have a big impact.
According to a survey, 50% of workers would accept a pay reduction for tailored perks. While many of those suggested incentives are for larger ticket items, even small benefits – such as a box of chocolates – can boost the morale of your workforce.
A survey by Employee Benefits found that 48% of workers feel a small act of recognition makes them feel more valued.
This all sounds like a great idea. But what about the tax implications of these small perks? To help, we’ll dig deeper about all you need to know about these ‘trivial benefits’.
What are trivial benefits?
A trivial benefit is a non-cash, tax-free perk given to employees. Such benefits are not subject to National Insurance or income tax. HMRC is quite strict about what is classed as a trivial benefit. This includes:
- The perk costs less than £50 to provide
- It isn’t cash or a cash voucher
- The perk cannot be a reward for work or performance
- It cannot be included in the terms of an employment contract
There are no limits to how many trivial benefits an employee receives in a year. But each benefit must not exceed £50. Limited companies with fewer than five ‘participants’, as HMRC calls them, must not exceed more than £300 in a tax year. But annual parties, such as Christmas parties, are not included in this limit.
Examples of a trivial benefit
HMRC doesn’t offer a definitive list of benefits that are classed as trivial. But the focus is on the word ‘trivial’. So, benefits for long service and team-building events, for example, do not classify. But a meal to celebrate a birthday can be classed as a trivial benefit.
This list is not exhaustive but gives you an idea of what HMRC classes as trivial:
- Birthday meals out
- Gift cards and e-gifts
- Bottles of wine
- Workplace pizzas
- Bunch of flowers
As well as benefits that can be classed trivial, you should be aware of those that are not. This includes:
- Providing lunch for employees as this is related to employment
- Taxis when employees work late
- Gifts, events or any incentives that relate to performance targets
Reporting and paying tax on trivial benefits
If any gift or benefit is classed as trivial, you do not need to declare it to HMRC. But if they fall outside the classification, then you need to submit P11D and P11D(b) forms. You must then pay any tax or National Insurance that you owe. Find out more about P11D forms in an earlier blog.
If you pay tax on all of an employee’s benefits through payroll, you don’t need to submit a P11D form. You still need to complete a P11D(b) form, however, to pay any Class 1A National Insurance you owe.
What is the value of trivial benefits?
As we have already mentioned, making employees feel special and increasing their happiness also increases their engagement. A study by Gallup shows that companies engaging with employees see a 17% increase in productivity.
But that’s not all. Another study shows that when employees are recognised for their contribution, a business is 12 times more likely to record strong results. And these businesses also see a 22% boost in profitability. So while small benefits may be considered ‘trivial’ in terms of HMRC’s classification, they are substantial to your business!
Help with ‘trivial benefits’
If you are running a business and not sure about whether any gifts you’ve given or are planning to give are classed as trivial benefits, we can help.
Falling foul of HMRC’s rules could take away the fun and benefits for you.
Contact our experienced team today for a chat about your accountancy needs.
