Christmas cheer or tax liability? How trivial benefits impact your business

With Christmas right around the corner, many of you might be looking into ways to spread the holiday cheer among your employees.

Maybe you want to give a box of chocolates to your executive assistant or a bottle of wine to your line managers – small gestures that brighten up the workplace.

Unfortunately, it is not as straightforward as simply heading to the shops and picking up presents for your team as these thoughtful gestures can have implications for your tax and National Insurance Contributions (NICs).

However, this does not mean you should shy away from offering such gifts.

If made correctly, they can remain tax-efficient while significantly boosting morale and fostering a positive workplace culture.

What are trivial benefits in kind?

Trivial benefits are small, non-cash gifts or perks given to employees.

For them to qualify as “trivial” in the eyes of HMRC, they must meet specific criteria:

• Each gift must cost £50 or less.
• The benefit cannot be cash or a cash equivalent (like gift cards exchangeable for cash).
• It must not be a reward for work or performance.
• The gift must not be part of an employee’s contractual benefits and cannot replace salary or bonuses.

Examples of trivial benefits include flowers, a theatre outing, or small seasonal gifts like hampers or wine.

Tax liabilities of trivial gifting

One of the most significant advantages of trivial benefits is their tax efficiency.

If these gifts meet the conditions set by HMRC, they are completely exempt from tax and NICs.

You will also not be required to report these qualifying gifts to HMRC, meaning there is no need to file a P11D form.

However, if a gift or benefit does not meet the criteria for trivial benefits, you must declare it to HMRC via the P11D process and pay any tax or NICs owed. If you are paying tax on employee benefits through your payroll, filing P11D forms is not required. However, you will still need to submit a P11D(b) to pay any Class 1A NICs due.

How to account for trivial benefits in your business

To maintain compliance, it is important to keep track of your trivial benefits.

You should document the details of each benefit including the date, who it went to, what it was, and how much it cost. This will make it easier to ensure you do not exceed the £50 limit.

It can also be beneficial to create a separate expense category for trivial benefits in your accounting system. This way, you can easily distinguish these gifts from other employee-related expenses and keep everything organised.

To incorporate tax-efficient gifting into your business strategy, please get in touch with our team.