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

:: 00:00

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 going to be diving into something that can help save you money, have a big impact on your team and yourself.

:: 00:20

And I'm going to 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?

:: 00:39

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.

:: 00:57

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.

:: 01:22

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 is now 15%. These are the benefits you can provide to your team without having to worry about that impact.

:: 01:43

And here's the kicker, the Brucie 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 fiver. Vouchers that can be swapped for cash -

:: 02:08

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.

:: 02:33

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.

:: 02:55

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 patterned behaviour. Now let's talk directors for a few moments here.

:: 03:17

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. That’s a company with five or fewer shareholders, then your trivial benefit limit is capped at 300 pounds per tax year. Now, that cap also applies to your family or household members if they get benefits too.

:: 03:36

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.

:: 03:59

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.

:: 04:17

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,

:: 04:38

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.

:: 04:59

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 fizz for under 50 quid, and there are lots of decent bottles of fizz for under 50 pounds.

:: 05:31

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 meal for hitting a sales goal, a taxi home after working late, a 50-pound monthly gym membership, vouchers you can cash in. Those perks will typically trigger tax and NI.

:: 05:53

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

:: 06:15

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 in the world of tax, they pack a punch. Handled well, they keep your team smiling (Who doesn't want that?), your tax bill low and your admin stress free. Handled badly,

:: 06:34

well, you are into tax penalties, awkward letters from HMRC and interest charges as well. So, do it right. Book your tax diagnostic review now. Head to ihatenumbers.co uk. Click on book a call, plan it, do it, and profit. Until next time, take care of yourself and your numbers.