Benefits are exempt from tax and National Insurance contributions if the following conditions are met:
The cost of providing the benefit does not exceed £50 or the average cost per employee if a benefit is provided to a group of employees and it is impossible to work out the exact cost per person
The employee is not entitled to the benefit as part of their employment conditions
The employer does not provide the benefit in recognition of particular services for example: long service awards, social events as a team-building event or as a ‘thank-you’ for good results in the year will. These will not qualify as trivial benefits
The close company provisions are met where appropriate (see below)
The benefit is not cash or a cash voucher
VAT and Trivial Benefits
Where VAT applies, the £50 cap applies to the VAT-inclusive amount.
HMRC note that common sense should be applied in determining whether the average cost method should be applied.
A Ltd takes a group of employees out for a meal to celebrate a number of birthdays. Five employees attend the meal at a total cost to the employer of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill, HMRC will accept that the cost per head is an average amount of £48.
The benefit of the meal can be covered by the exemption as the cost for each individual does not exceed the trivial benefit limit.
But note that if the meal had instead been to celebrate the group achieving a target, then the trivial benefits exemption would not apply because the meal would be a reward for work done.
An employer gives an employee a gift card, which costs £10 to provide. The employer tops up the employee’s gift card on seven further occasions, at a cost of £10 each time. Although the benefit to the employee is topped up on separate occasions, HMRC considers this to be a single benefit (the provision of the gift card). The total cost to the employer for providing the benefit over the period of employment is £80 and therefore it cannot qualify for exemption as a trivial benefit.
Where the employer is a close company, the trivial benefits exemption for a director, office holder or to a member of their family or household is capped at a total cost of £300 per year (subject to the usual £50 cap on each exempt trivial benefit).
Where the cap is exceeded, none of the benefit that breached the £300 limit is exempt. However, benefits provided earlier in the tax year when the cumulative total of exempt benefits was equal to or less than £300 are still exempt. The exemption applies to benefits falling within the limit – it is not a tax-free allowance.
Example An employer holds an annual Christmas party for all staff, at which each member of staff is also given a hamper. The total cost of the party was £12,000 inclusive of the hampers, which cost £40 each. The number of staff attending was 75. The hampers are not part of the event and should be considered separately. They cannot be included in the annual function exemption. However, the hampers cost less than £50 each and as they were not given as a reward for specific service, they can qualify as trivial benefits. This is good news because otherwise the cost of the function would have exceeded £150 per person (£12,000 ÷ 75 = £160). Without the hampers, the function costs £9,000 ÷ 75 = £120 per person and meets the requirements for the exemption.