Many businesses are seeking cost-effective ways to reward their teams, making it worthwhile to revisit HMRC's trivial benefits rules. These rules allow employers to provide small gifts to staff tax-free, provided certain conditions are met.
In our latest blog, Alun Evans, Partner at Bevan Buckland's Haverfordwest office, explains how these rules work, highlights common pitfalls, and shares practical examples to help employers stay compliant while showing appreciation to their teams.
What Qualifies as a Trivial Benefit?
You are not required to report or pay tax if the benefit:
- Costs £50 or less per benefit,
- Is not cash or a cash voucher,
- Is not a reward for work or performance,
- Is not part of the employee’s contract.
These benefits are exempt from tax and National Insurance, and you do not need to notify HMRC. However, they must meet all the criteria stated above. If even one condition is not met, the exemption will not apply.
Common Examples: What is Included?
Let’s look at a couple of scenarios to clarify what counts:
Example 1: Not Allowed
You give a £50 gift voucher to an employee who secured a new client or made a cost-saving suggestion. While generous, this is considered a reward for performance and does not qualify as a trivial benefit.
Example 2: Allowed
You give a £50 bottle of champagne to celebrate an employee’s birthday, wedding, or Christmas. Since it’s not linked to work performance, it qualifies as a trivial benefit.
A Note on Gift Vouchers
Not all vouchers are created equal. To qualify, the voucher must be redeemable for goods or services, not cash. For example:
- £50 M&S voucher – can be used in-store or online, not exchangeable for cash.
- £50 prepaid debit card – often considered a cash equivalent and may not qualify.
Stick to store-specific or experience-based vouchers to stay compliant.
Directors of Close Companies: Special Rules Apply
If you’re a director of a close company (typically a limited company with five or fewer shareholders), you can receive up to £300 in trivial benefits per tax year. These must still meet the usual conditions and be spread out across the year.
So rather than one £300 gift, consider six separate £50 gifts throughout the year. This keeps you within the rules and avoids scrutiny.
Salary Sacrifice Schemes
Trivial benefits do not qualify for exemption if provided through a salary sacrifice arrangement. In these cases, you must report the higher of:
- The salary given up
- The cost of the benefit
This is a common pitfall, so it’s worth double-checking how benefits are being provided.
Avoiding the VAT Trap
VAT can be another stumbling block. You don’t have to account for VAT on business gifts made to the same person, provided the total cost doesn’t exceed £50 (excluding VAT) in any 12-month period.
If you go over this threshold, VAT may be due—so keep a record of gifts and their values.
Need Help Navigating Employee Benefits?
Trivial benefits are a simple and effective way to show appreciation, but the rules can be nuanced. If you’re unsure whether a gift qualifies or want to explore other tax-efficient ways to reward your team, we’re here to help. Please get in touch with your usual Bevan Buckland contact to find out more or visit our website.
