Outdated limits on trivial benefits are restricting tax-free employee perks
Where an employer provides an employee with an item such as a gift voucher for their birthday, a bottle of wine or whisky at Christmas, or flowers for a family event, these are often covered by the ‘trivial benefits’ exemption. To be covered, the benefit must not be cash or a cash voucher, must not cost more than £50 (including VAT) and must not be provided under salary sacrifice arrangements, any contractual obligation or in reward for services performed, or to be performed by the employee.
While directors of close companies (broadly, a company controlled by five or fewer ‘participators’ or by its directors) are subject to a £300 cap on trivial benefits per tax year, there is no limit on the number of benefits that the exemption can cover for other employees.
However, the exemption only applies where the employer provides the benefit directly. It does not apply where employees are reimbursed for costs they have incurred, even if those benefits would otherwise qualify for the exemption.
What’s the issue?
The limit for the trivial benefits exemption has been set at £50 since the legislation was first introduced in 2016.
The way the rules operate also throws up some unhelpful inconsistencies. For example, a bunch of flowers given directly by an employer to a bereaved employee would qualify as a trivial benefit. However, if a colleague purchases the flowers and is reimbursed, the exemption does not apply. Similarly, team treats (such as cakes) are treated differently depending on whether the employer pays for them directly or reimburses the employee who made the purchase.
Why it matters
The static £50 limit means that fewer items that may generally be considered to be trivial will fall within the exemption. If the limit increased in line with inflation, it would be £70 by the start of the 2026/27 tax year.
On a practical level, the inability for employees to be reimbursed for expenditure that would otherwise be covered by the trivial benefits exemption is very inflexible in terms of the commercial reality of how lower value gifts might be acquired by businesses.
VAT treatment of trivial benefits
A VAT-registered business can usually recover VAT incurred on goods provided to employees as trivial benefits. However, where goods are given to employees, this can trigger a VAT charge under the deemed supply rules.
Where goods are gifted and VAT has been recovered, the gift may be treated as a deemed taxable supply, meaning the employer must account for VAT on the value of the goods. However, if VAT has not been recovered (for example, where the employer provides a general retail gift card such as an M&S or Tesco voucher), the employer is not required to account for VAT on the trivial benefit.”An exception applies for “business gifts” where the total cost of gifts made to the same person in a 12-month period does not exceed £50. In these cases, no VAT is payable, allowing the employer to retain the benefit of the input VAT recovery.
In practice, this means an employer can provide gifts totalling up to £50 per employee per year without a VAT charge arising. However, once this threshold is exceeded, VAT becomes due on further gifts, increasing the cost to the employer of the gifts provided.
What’s the issue?
This creates a clear mismatch with the trivial benefits exemption for Income Tax. While the trivial benefits rules allow multiple benefits to be provided (subject to the £50 per item limit, and a £300 annual cap for directors of close companies or a member of their family or household), the VAT rules impose a £50 12-month cap for all recipients.
This misalignment adds unnecessary complexity and increases the risk of error. Employers may assume that benefits qualifying as “trivial” for employment tax purposes are also straightforward from a VAT perspective, when in fact additional VAT charges may arise.
Why it matters
The £50 annual VAT threshold for business gifts has remained unchanged since March 2001, when it was increased from £15. If it had kept pace with inflation, it would now be close to £100.
The combination of an outdated threshold and inconsistent rules between VAT and employment taxes creates confusion, an unnecessary administrative burden, and a higher likelihood of mistakes. Aligning or updating these thresholds would simplify compliance and reduce friction for businesses providing low-value employee benefits