No Trivial Matter, Trivial Expenses
Did you know if you own a small company under new HMRC rules you can claim up to £300 per director per annum for Trivial Expenses?
What are they?
The basic rule is that an employer can now provide trivial benefits such as a bunch of flowers, a box of chocolates, a meal out, without having to put it on their P11D and without any tax or national insurance for either employer or employee. The employer will also be entitled to claim income tax or corporation tax relief on the cost.
There are three key conditions:
the trivial benefit must cost no more than £50
the benefit must not be a reward for services or in any way contractual
the benefit must not be cash or a cash voucher
It is important to make sure that no single purchase is above £50 otherwise the whole amount becomes a taxable benefit in kind.
So can director/shareholders enjoy trivial benefits themselves? YES !!
But HMRC know what directors can be like, so the legislation imposes an annual cap of £300 on exempt trivial benefits provided to a director or office-holder of a close company (including benefits provided to members of their family or household). Broadly, a company is "close" if it:
Is privately owned and controlled
By five or fewer individual participators
The majority of small companies and many family companies are close companies.
HMRC has kindly given us some detailed guidance on this matter with a number of examples to help us on our way:
Example 1: Employer A 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 employer A of £240. Individual employees make different menu and drink selections. Rather than undertake a detailed analysis of the bill you should accept that the cost per head is £48, reflecting an average amount of £240/5. The benefit of the meal can be covered by the exemption since the cost for each individual does not exceed the trivial benefit financial limit.
Example 2: Employer B provides each of its 100 employees with a turkey at Christmas and the total bill comes to £4,500. There are a variety of sizes. Because the employer has made a bulk order, the turkeys have not been priced up individually but would cost in the region of £40 to £60 each. Employees are able to choose which bird they have. Rather than undertake a detailed analysis of the individual benefits, you should accept that the cost per head is £45, reflecting an average amount of £4,500/100. The benefit can be covered by the exemption since the cost for each employee does not exceed the trivial benefit financial limit.
Example 3: Employer C provides each member of its 25 strong work-force with a bottle of wine at Christmas. The total bill comes to £1,000. This reflects 20 bottles of wine that cost £15 per bottle provided to each of its employees and 5 bottles of wine provided to each of its directors that cost £140 per bottle. In this case it is not impracticable to determine the cost of the individual benefit and the actual cost per item should be applied in determining whether the monetary limit has been exceeded for each employee and director. The benefit of the £15 bottles of wine can be covered by the exemption since the cost does not exceed the trivial benefit financial limit but not the benefit of the £140 bottles of wine provided to the directors.
Example 4: Employer F runs a call centre and gives £25 gift vouchers to employees who hit specific performance targets each week. The gift vouchers are provided in recognition of the services provided and so the exemption cannot apply.
Trivial expenses are a great way to celebrate with your team and tax efficient to boot. Please contact us for further guidance.