New trivial benefits in kind exemption is not so trivial

July 20, 2016

HMRC has published draft guidance on the new statutory exemption for trivial employer-provided benefits in kind.

We have a limited company client who are basically a lovely employer. They often give their employees little treats and perks and generally make the company a great place to work. Then we come along with our accountant’s head on and start quizzing them about the minute details of each expense to try and determine whether it falls within any taxable expense category and also if it will cause the employee to suffer a benefit in kind. What was meant as a generous gesture could easily end up causing the employee unwanted extra tax.

This is why we are quite excited about the Trivial Benefits in Kind Exemption

The new regime will see an employer to employee benefit in kind exempt from tax provided the following conditions are met:

the benefit is less than £50

the benefit is not cash or a cash voucher

the employee is not entitled to the benefit as part of any contractual obligation or is habitual

the benefit is not provided in recognition of particular services performed by the employee

When the employer is a close company and the benefit is to an individual who is a director (or to members of their families or households), the exemption is subject to an annual cap of £300.

Provided the above conditions are met and the cost is below £50 or averages to below £50 per employee, the employer does not need to declare this on a form P11D. Unlike the cap to exemption for directors, employee benefits are not limited. HMRC has provided a number of example scenarios where this exemption can be used to mitigate tax liabilities.

Scenario 1: Celebrating Birthdays

You take a group of your employees out for a meal to celebrate their birthdays. Five employees attend the meal at a cost to you of £240. Each of the employees choose a different selection of food and drinks. The cost per head works out at £48, if the bill is split evenly. This can be covered by the exemption since the cost for each individual does not exceed the trivial benefit limit.

Scenario 2: Staff Parties

As director, you decide you want to provide your employees with two annual functions, one at Christmas and one in the summer. The first function costs £140 a head and the second costs £40. The first function is exempt by virtue of the annual parties function exemption. The second would be considered a trivial benefit in kind because it does not exceed £50.

Scenario 3: Director Benefits

As a director you are provided with 3 bottles of wine that cost £30, £40 and £50 respectively in a single tax year. The total cost of the benefits is £120. The total cost does not exceed the annual exempt amount of £300 and all of the benefits can be covered by the exemption.

This benefit in kind exemption allows for considerable flexibility for minimising business tax liabilities. If you would like to discuss further ways this can be used to mitigate the costs of rewarding staff, please contact us.

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