Directors of limited companies should remember that both they and their staff are allowed to be paid tax free gifts of up to £50.
As long as such gifts are not in cash, are not a reward for work or formalised in contracts then they can fall under the ‘trivial benefits’ rule.
Each director of a close company (a limited company that’s run by 5 or fewer shareholders) could receive up to a maximum of £300 in a tax year in such gifts, as long as each gift is for no more than £50 and is for a separate occasion not linked to their performance.
Tax free money
Everyone enjoys receiving presents for a birthday, Christmas or other celebration, but directors and employees won’t appreciate gifts from their employer if tax charges are attached.
Fortunately, a statutory exemption from income tax and national insurance for employees and employers exists thanks to what is known as the ‘trivial benefit’ rules.
This means giving directors or staff up to £50 in vouchers or gifts to mark celebratory events can all be tax free, as long as strict rules are followed.
Following the rules
The ‘trivial benefit’ must cost the company £50 or less to provide, including VAT; it cannot be a reward for work or performance; and it must not be in any terms of a contract.
It must also not be cash or a voucher that can be exchanged for cash, although non-cash gift vouchers which can be spent in retail stores should be acceptable.
The £50 gift then becomes a ‘trivial benefit’ and you do not need to pay tax or National Insurance or even let HM Revenue and Customs know about it, although it is always sensible to keep records just in case.
Directors of ‘close’ companies – limited companies that are run by five or fewer shareholders – can receive trivial benefits worth up to a maximum of more than £300 in any tax year.
Companies should take care with ‘trivial benefits’ rules, as they provide an ‘all or nothing exemption’, so if the cost of a gift exceeds £50 then the full value is taxable under the usual benefit in kind rules.
Where the benefit is provided to a group of employees and it is impractical to work out the exact cost per individual, then the average cost must come under the £50 limit.
It is worth noting that ‘trivial benefit’ rules are additional to the normal annual staff party limit of £150 per annum, per head.