£300 Trivial Benefit Allowance

Summary: 

What it is: HMRC allows company directors to receive up-to £300 of trivial benefits each year from their business 100% tax free. 

Approximate tax saved: Between you and your company, this could save you up to £228 of tax. Actual tax savings will vary depending on your individual circumstances. 

HMRC reference: https://www.gov.uk/expenses-and-benefits-trivial-benefits

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Here’s how it works: 

Most benefits given to directors of a company are taxable. This means the Director has to pay Income Tax and the business has to National Insurance via a P11d form. 

However, when the benefit is what HMRC would deem as 'trivial', it does not need to be reported on a P11d and will be tax exempt. This is what’s known as a trivial benefit. 

To be specific, HMRC allows company directors to receive up-to £300 of these trivial benefits per year from their business 100% tax free, but certain conditions do apply so read on.

Using this tax tip: 

So how do you take this trivial benefit and get the money out of your company? 

Great question. Firstly, you have to know that 2 rules apply: 

1. No individual benefit should exceed £50 in value
2. No benefit must be given as cash. However, vouchers do not count as cash.

Therefore, your business can purchase 6 x £50 vouchers per year and give them to you entirely tax free. The vouchers can be from anywhere you like and you can spend them on whatever you like.

Common examples could include vouchers for Amazon, Selfridges, Airbnb, a round of golf or a spa treatment. The business pays for it and you get to spend the vouchers on yourself tax free. 

Just make sure to stick to the £300 total limit and £50 individual limit for each voucher purchased. 

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The tax savings: 

In total, you could save up to £228 of tax through using this trivial benefits allowance as detailed below:

Corporation tax: 
The £300 of trivial benefit allowance is tax deductible, so you will save corporation tax at a rate that will depend on your profits. This could be 19% at the small profits rate or even as high as the marginal rate of 26.5% if your profits are between £50,000 - £250,000. For the purposes of this example, we'll assume the main rate of corporation tax (25%) is applicable, which results in £75 in savings (£300 x 25%).

Personal income tax:
The rate of income tax you will pay will depend on your personal income levels. However, if you are a higher rate tax payer for example (paying 33.75% income tax on dividends), you would otherwise have to issue a further £453 of dividends to retain £300 post income tax (£453 x 33.75% = £153 of tax) to pay for these trivial benefits.

Therefore looking at this holistically, by issuing £300 of trivial benefits through your company, you save tax, yet retain £300 (of vouchers) to spend on yourself tax free.

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How do you claim the trivial benefits allowance?

In Mighty

Mighty makes this incredibly easy to do and will take care of all tax deductions for you. Here's how to do so in 3 simple steps. 

1. Buy the vouchers and find the transaction in your bank feed
2. Select the transaction and categorise it as a 'Trivial Benefit' under the paying yourself category (or simply search 'trivial benefit')
3. Click 'Approve' and Mighty will take of everything - applying the tax saving for you.

And that's it, you've just saved yourself a bunch of tax 100% legally in a few clicks!

If you're not with Mighty:

You should make a note and let your accountant know what the transaction is for. They should then be able to categorise it and apply the tax deduction manually for you.