Employers can give staff small gifts free of tax and National Insurance under the trivial benefits exemption. Each benefit must cost £50 or less, including VAT, and must meet a few simple conditions. There is no reporting to HMRC and no payroll entry.
For directors of close companies, which includes most owner-managed businesses, there is an annual cap of £300. Used properly, it is a simple way to say thank you without creating a tax bill.
The conditions
A benefit is exempt only if all of the following apply:
- It costs the employer £50 or less per employee, including VAT.
- It is not cash or a cash voucher.
- It is not a reward for work or performance.
- It is not provided under the employee's contract or in return for giving up salary.
The £50 figure is a limit, not an allowance. If a gift costs £55, the whole £55 is taxable, not just the £5 over the limit.
What qualifies
Typical trivial benefits include:
- A bottle of wine, flowers or a hamper at Christmas.
- A birthday gift or cake.
- A gift card for a shop or restaurant, as it is not exchangeable for cash.
- Flowers or a gift when someone is unwell or has a new baby.
- Taking the team out for an occasional lunch, where it is not a reward for hitting a target.
There is no limit on the number of trivial benefits an ordinary employee can receive in a year, although each must be genuinely separate and meet the conditions. HMRC is likely to look closely at a pattern that looks like a regular payment in another form.
What does not qualify
A £50 bonus for finishing a project is a reward for work and is taxable through payroll. So is a gift card handed out for the best sales figures of the month. Cash, and vouchers that can be exchanged for cash, never qualify.
A benefit that the employee is entitled to under their contract, or that replaces salary through a salary sacrifice arrangement, also falls outside the exemption.
The £300 cap for directors
Directors of close companies, and members of their family or household who are also employees of the company, can receive trivial benefits worth no more than £300 in total in a tax year. Each individual benefit must still cost £50 or less.
The cap is per person. A husband and wife who are both directors each have their own £300 limit, so the household could receive up to £600 a year between them. For 2026/27, the tax year runs from 6 April 2026 to 5 April 2027.
A worked example
A company has two directors and eight employees. During the year it gives each person:
- A £45 hamper at Christmas.
- A £40 gift card on their birthday.
- Flowers costing £30 when one employee is in hospital.
All of these are trivial benefits. The cost is deductible for corporation tax as a staff cost, and there is nothing to report on a P11D and no Class 1A National Insurance.
The directors could also take further gifts during the year, such as a £50 gift card every other month, until each reaches £300. Had the company paid each director an extra £300 as salary instead, a higher rate taxpayer would have lost £120 in income tax and 2 percent employee National Insurance, and the company would have paid employer National Insurance at 15 percent.
Keeping records
Although nothing is reported to HMRC, keep a simple log of what was given, to whom, when, the cost including VAT and the reason. This is particularly important for directors, as you will need to show the £300 cap has not been exceeded. Keep receipts with the log.
Where a benefit is given to a group, such as a team lunch, record the total cost and number of people so you can show the cost per head was within £50.
What to do
- Check each gift against the four conditions before you give it, especially the reward for work test.
- Keep the cost of each gift at or below £50 including VAT.
- Track directors' benefits against the £300 annual cap.
- Keep a log and receipts in case HMRC asks.
If you would like us to look at how you reward your team, book a free call.
