We are often asked what benefits a company owner can award themselves and staff, and what the tax implications of those benefits are.
Most benefits will be taxable, and have to be included on a P11D form, with the company paying national insurance and the employee paying income tax as though it was a part of their regular salary.
There are however tax free benefits – known as ‘trivial benefits’ – that don’t have tax implications, but there is very specific criteria for them to meet. Think of them as small tokens rather than grand gestures and you are on the right path.
Ask yourself the following questions about the benefit:
- Is the cost of the benefit greater than £50?
- Is the benefit cash or a cash voucher?
- Is the employee entitled to the benefit as part of a contractual obligation?
- Is the benefit provided as a reward or recognition for achievement?
If the answer to any of the above questions is yes, then the benefit is not considered trivial and will be treated as a taxable benefit. If the answer is no, then the benefit is considered trivial so it will not be taxable or need to be included on a P11D.
So for example, if you always treat the team to sandwiches from the bakery on a Friday, then this would be considered trivial. If however, only the team members that hit their targets for the week got sandwiches, this would be performance related and not tax free.
Another example would be a voucher for a team member’s birthday. Provided it could not be converted into cash, this would be trivial. Obviously, if they team have pooled together and this is not paid for by the business then there are no tax implications for that.
These rules apply to Directors of close companies as well as employees. A Director can receive up to £300 per year of trivial benefits before they become taxable, and employees can receive up to £50 each month. It’s important to remember that this is an exemption, not an allowance, so if you go over by even 1p, the whole amount becomes taxable, not just the amount over the limit.
If you are unsure whether or not a benefit you provide your team is taxable then please get in touch.