If an employer provides an employee with trivial benefits and all the following conditions are met this benefit is exempt from tax and NI
- Cost must not exceed £50
- Gift is not a cash voucher
- No contractual obligation to grant the benefit
- Benefit not a reward for work/performance
- Benefit is provided on an irregular basis
Cost less than £50
This amount is NOT an allowance, rather it’s an exemption, therefore you can provide various gifts during the tax year for less than £50 and it will be exempt from taxes. The £50 limit does also include the VAT.
If the cost is above £50, for example, a company provided an employee with a gift worth £150, even though this is £100 more than the exemption, the entire £150 is taxable, not just the amount above £50.
If the benefit is provided for a group of employees, then you need to calculate the average cost. For example, if your employer takes 4 employees out for lunch to celebrate their birthdays, the total cost of the meal was £240, so total cost per person was £48 (240/5 people (4 employees and their manager). So, this lunch will be tax exempt.
Non-cash vouchers
If an employer provides a gift to an employee, and it can be transferred into cash, this will be taxable benefit, even if amount is less than £50. Common examples include travellers’ cheques or Premium bonds. A money voucher will be tax exempt if the voucher cannot be redeemed into cash.
Benefit not a reward for work/performance
If an employer provides a gift as a long service award or as a general thank you to an employee for their work success, this is considered work related benefit and is taxable benefit. If an employer provided an employee a gift on their birthday, this would not be taxable, as it has no connection to work performance.
Further common examples
- If employees work during their lunch break to complete a particular task that needs to be urgently finished and the employer provides lunch for these employees, this would be a taxable benefit as it’s work related.
- If employees who reach a certain sale targets each month receive a gift voucher, this is taxable benefit, as it’s worked related.
- If an employer provides employees lunch at an all-day work seminar at your offices, this is taxable benefit.
Benefit is provided on an irregular basis
If an employer periodically provides sandwiches at the office for employees to have lunch, as the benefit repeats itself, this is considered one benefit, and the total sandwich benefit must be lower than £50 in the tax year.
Director Benefits
The same 5 conditions apply to a director of a closed company, to enable the benefit to be exempt from tax. However, there is one difference, a director has a £300 annual allowance for all gifts over the tax year. As mentioned above, an employee can receive various trivial gifts over the tax year under £50, even though if you add them up, they exceed £300, it’s still tax exempt, a director is limited to £300.
Annual Function exemption
If a company hosts annual social events, for example, end of year party and a summer BBQ, if the combined individual benefit of the event is less than £150, there is a special annual function exemption of £150 and no tax is due.
If, however, the end of year party was £140 and the BBQ was £40, you cannot apply the annual function exemption to both events, rather the end of year party will be exempt based on annual function exemption and the £40 BBQ will be exempt based on the trivial benefit exemption.
