Contractor accountants warn against ‘artificially’ snapping up trivial benefits between now and Friday

A tip to buy six £50 food vouchers by April 5th to take advantage of HMRC Trivial Benefits rules isn’t going down well with all contractor accountants.

Seen by ContractorUK, the tip for LTDs to claim £300 worth of ‘TBs’ tax and NI-free via six £50 vouchers, was said to be good up until this Friday.

But it’s the advice as a whole which isn’t good, despite ‘close companies’ being technically able to claim up to £300 a tax year in TBs without tax and NI implications.

'Artificial'

Of this assessment from him yesterday, chartered accountant Graham Jenner told ContractorUK: “Snapping up six £50 shopping vouchers between now and April 5th is artificial.

“While the benefit has to be less than £50 a time, if given [to an employee or director] at or near the same time, the risk is HMRC deems it one transaction of £300”.

Jenner says tempted PSCs should note that HMRC’s examples of permitted TBs are payments in recognition of events outside work.

“A payment because…it will be lost if not spent will [likely] be considered [by HMRC] a reward for performing work. And that’s not [acceptable] criteria for a TB.” 

The founder of Jenner & Co continued: “HMRC would invariably say there’s no other justification for paying it at this time of year.

“Unless it was the director’s birthday or some other anniversary falling around the tax year-end.”

'Ideal for birthdays, Easter, or flowers'

Some of Jenner’s points got echoed yesterday by another adviser to limited companies (also known as personal service companies), Helen Christopher.

Also a chartered accountant, Christopher says the TB rules are ideal for small events for PSCs like a birthday, even an Easter egg purchase, or flowers for the birth of a child.

She confirmed PSCs with five shareholders or fewer can claim up to £300 in TBs (max £50 a time), per tax year, with no ensuing HMRC bill.

But she sounded more sympathetic to PSCs who have not used TBs in 2023/24, who now want to purchase six £50 vouchers before 2024/25.

'High street shop voucher is fine'

“Directors can take up to 6 x £50 TBs in a tax year without any tax and National Insurance implications,” Christopher, the boss at Beansprout Consultancy began.

“Vouchers are acceptable if they are a ‘non-cash voucher,’ [i.e. not a voucher that can be exchanged for cash], so one that is only exchangeable for goods or services.

“So a high street [shop] voucher, or a restaurant voucher, is fine.”

In a LinkedIn post about the rules, Christopher further advised PSCs: “Make sure you take advantage of the rules.”

'Why not; with so few perks fo PSCs?'

A ContractorUK Forum post shows PSCs have previously tried to do exactly that -- with vouchers from Marks & Spencer, John Lewis and Amazon.

And understandably so, Louisa Drewett, a director of Aardvark Accounting signalled last night to ContractorUK.

“Claiming trivial benefits as a director, refers to ‘small’ - not exceeding £50 - non-cash perks or benefits provided by a company to its directors such as a gift; a box of chocolates… [or] a gift card. 

“These benefits are typically of low value and provided infrequently. 

“It’s important that these benefits can’t be converted into cash and are not in return for services but providing the directors understand the rules and criteria, plus remain within the £300 cap per tax year – why not utilise the [rules]?” Drewett asked. “There are very little perks [for PSCs] these days!”

'Here's the question to ask yourself as a contractor...'

Sounding aware it might be lawful but worried purchasing six £50 vouchers before Friday fails the ‘sniff test’ is Integro Accounting managing director Christian Hickmott.

"The purpose of the trivial benefits exemption was to simplify taxable benefit reporting and this change came into force from April 2016.

“The intent was to allow employers of a close company - five or fewer shareholders - to thank staff or recognise milestones without the need for reporting these to HMRC on a P11D.

“With that in mind,” Hickmott continued to ContractorUK, “the question to ask yourself if you’re a contractor working through your own company is ‘Did HMRC introduce this for a director to gift themselves a tax-free £300 a year?'

“Even if it is an allowable and legitimate way of taking a few extra pounds out of your company, [I’d say the answer is definitive ‘No’].”

'Consider the circumstances'

Jenner & Co agrees. The contractor accountancy firm said: “We fear whoever has recommended the 6 x £50 [food shopping] vouchers [between now and April 5th] has merely looked at the £50 limit per benefit, and the £300 annual limit, without any attempt to consider the circumstances under which HMRC would consider it a ‘Trivial Benefit.’”

However, almost indicating that claiming TBs in such a way probably comes down to an individual director’s circumstances -- and maybe even that director’s own HMRC risk-appetite, a ContractorUK reader reflected: “It's been discussed…now and again for a while now. Some [contractors] take advantage of it, others don't.”