Trivial Benefits for Limited Companies
Question – I run a small limited company as a freelance designer where myself and my wife are the only shareholders with no other employees. I read about something called trivial benefits which I believe I can take advantage of, can you explain what these are and how they work?
We hope you enjoy this article from our archives. As tax rules change a lot over time, the information in this post may not be current, but we hope you still find it interesting.
Answer, October 2017:
New rules came in for the 2016/17 tax year which continue into the 2017/18 tax year with regards to trivial benefits for limited companies.
As you and your wife are the only directors and shareholders your company will very likely be classified as a close company – this means that each director / office holder (including any family employees) is allowed up to £300 of trivial benefits per tax year.
What is a close company?
In simple terms a close company will be a limited company which is owned privately and is not controlled by more than 5 participators.
A participator will be someone such as a shareholder, director or even potentially a loan creditor.
In reality the majority of limited company freelancers, contractors and micro businesses will be classified as close companies.
Trivial benefits rules
£300 is the total that can be spent per director / office holder / family employee in a tax year (6th April to 5th April).
There is also a cap on each single benefit being provided of £50.
It is important to make sure that no single purchase is above £50 otherwise the whole amount becomes a taxable benefit in kind.
A trivial benefit cannot be cash or a cash voucher (a voucher which can be exchanged for cash) and it must not be a reward for an employee / directors work or be a part of the terms of their contract.
Also, very importantly, the cost should be paid for directly by your business bank account – it should not be paid for personally and reclaimed or HMRC could challenge the cost.
What counts as a trivial benefit?
Frustratingly (or perhaps typically!) there is not a simple description from HMRC as to what constitutes a trivial benefit.
HMRC will assess the item and apply judgement to it to see if the expense is in reality part of the employee’s remuneration (pay) or if it is genuinely a trivial benefit and meets the criteria discussed earlier in the article.
Some examples of allowable trivial benefits include:
- Bottles of wine
- A Christmas Turkey
- Flowers
If you are unsure if any item qualifies as a trivial benefit you can call HMRC on the employers helpline to confirm.
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