Reward Staff (and Yourself) Tax-Free with Trivial Benefits

Welcome to another episode of I

Hate Numbers.

I'm your host, Mahmood accountant, tax

advisor, and author looking after social

enterprises, creatives, and small businesses.

In this week's episode, I'm gonna be diving

into something that can help save you money,

have a big impact on your team and yourself.

And I'm gonna be talking about tax free.

Yep, that's right.

Tax free.

Trivial benefits.

Now they're not called trivial

because they are of no relevance far from it.

They're called trivial because they're small

in financial terms, but in the right hands they

pack a mighty punch.

So what exactly are trivial benefits?

Well, they're like little perks or gifts

that you give to your staff, and that can

include you if you happen to be the director

of your own company.

Now done right?

They're completely tax free.

There's no income tax to worry about.

No national insurance, no reporting to HMRC,

and also they're tax deductible.

Now that sounds good, but it's only good if

you stick to the rules.

Now, these aren't bonuses in disguise.

There's small gestures outside of

your normal salary.

They can be things like a birthday bottle of wine

or a coffee gift card.

Now, HMRC permits them, but they play by four

very strict rules.

Ignore even one, and you're back into tax

territory and your bank balance will be affected.

Now, why should you care?

Why should you even bother as an employer?

Well, let me break it down.

Trivial benefits save you money.

They save you tax, they lift morale, and

they show appreciation.

We bear in mind that national insurance

for employers now 15%, these are the benefits

you can provide to your team without having to

worry about that impact.

And here's the kicker.

The Brucey bonus if you wish.

There's zero, absolutely zero red tape if

you get it right.

Everybody wins.

So what are the four golden rules?

Well, let's run through these rules

that you must follow.

Rule number one.

No cash or cash vouchers.

You cannot give cash.

Not even a humble five vouchers that

can be swap for cash.

Also a big fat, no.

Now a gift card for Greg's, try their vegan

sausage rolls or Costa.

Yep, that's fine as long as it's not cashable.

Rule number two, it must cost 50 pounds or less.

Now that's per person per benefit.

If you happen to spend just over 50 pounds,

even a pound over, it becomes fully taxable.

Not just the extra pound, but the whole lot.

So make sure you stick to that limit.

Rule number three, you cannot give that

as a reward for work.

It can't be consequential.

A thank you for smashing a sales

target, not trivial.

A meal for staying late.

Also not trivial.

These are rewards and rewards, unfortunately

equate to tax impact.

Rule number four, it mustn't be a

contractual obligation.

Now, if your employee expects that, either

because it's in writing or it frequently occurs,

HMRC might see it as a right, not as a perk.

The key word is perk here.

Now that regular Friday treat tray could, in

theory be taxable if it becomes a normal.

Partner behavior.

Now let's talk director for a few moments here.

There are special rules.

Now if you happen to be the director of a close

company, and that doesn't mean that everyone's

connected by family as a company with five or

fewer shareholders, then your trivial benefit

limit is captured 300 pounds per tax year.

Now, that cap also applies to your family

or household members if they get benefits too.

Now you can break it into smaller chunks,

say six 50 pound gifts across the year.

But once you hit the 300 pound limit, stop or bear

the tax consequences.

Now, let's talk numbers.

Let's look at the cost.

You give a 45 pound bottle of wine,

the cost to you.

45 pounds under the limit.

No problem.

Spend 500 pounds on 20 employees, 25

pounds for each one.

Absolutely fine.

Always use the actual cost of the average

cost per person.

Now, keep receipts please, folks, trust

me if HMRC comes knocking on your door

digitally or otherwise, they'll want to see

proof, so be careful of those pitfalls.

Now let's also walk through some of the

traps you want to avoid.

Pitfall number one.

Using it as a reward.

You can't give somebody a gift because

they worked late.

HMRC calls that reward and that

triggers a tax charge.

Pitfall number two.

Using it as part of a salary sacrifice scheme.

Now, trivial benefits don't work if the

employee has to sacrifice pay for them, even

if it's just 20 quid.

One salary sacrifice enters the picture,

there is no exemption.

Pitfall number three, contractual

or implied benefits.

Now, if something happens every Friday,

for example, it might be seen as part of the job.

HMRC might say, that's not a treat.

That's expectation.

So make sure your policy clearly say these perks

are discretionary.

Now, recurring benefits, a cost of 40 pounds.

Spa voucher, great.

A 40 pound voucher every month.

Now we're talking 480 pounds per year.

That's way over the limit and it is taxable,

but what can count as a trivial benefit?

So let's get some real examples here.

Typical tax free trivial benefits could include

a 10 pound coffee gift card, a 35 pound

Christmas hamper, a bunch of flowers for a

birthday, a small bottle of FI for under 50 quid,

and there are lots of decent bottles of fis

for under 50 pounds.

Now these are small, thoughtful,

and not linked to work performance.

Perfect.

There cannot be a correlation

between the two.

Now what's not tax free, it's a 60 pound mil for

hitting a sales goal.

A taxi home after working late, a 50 pound monthly

gym membership mount as you can cash in, those

perks will typically trigger tax and ni.

Now, how do we keep on the right side of HMRC?

What creates a written trivial benefits policy?

Train your managers to understand the rules

or be aware of them.

Track the cost and frequency.

Avoid anything that's recurring or

feels like a reward.

Now, obviously, if you are the director of your

own company, it's a small close company here, then

obviously it would still be advisable to have

these policies in place.

The golden question to ask is, would HMRC

see this as a thank you or a reward?

Now, final word, folks.

Trivial benefits might seem well

trivial, but the word attacks, they pack a

punch, handled well.

They keep your team smiling.

Who doesn't want that?

Your tax bill low and your admin's stress

free, handled badly.

Well, you are into tax penalties.

Awkward letters from HRC and interest

charges as well.

So do it right.

Book your tax diagnostic review now.

Head to I hate numbers.co uk.

Click on book a call, plan it, do

it, and profit.

Until next time, take care of yourself

and your numbers.