As a Managed Service Provider (MSP) owner, you’re always looking for ways to optimise operations, increase employee satisfaction, and manage costs effectively. One often-overlooked strategy is leveraging trivial benefits to provide perks to your team without the burden of additional taxes. This blog will explore how these benefits can enhance your company culture while being tax-efficient.
Understanding Trivial Benefits
Trivial benefits are small perks given to employees that are exempt from tax and National Insurance contributions (NIC). To qualify, these benefits must meet specific criteria:
- Cost Less than £50: Each benefit must not exceed £50.
- Not Cash or a Cash Voucher: These perks should be tangible items or services, not cash.
- Not a Reward for Work Performance: They should be given without relation to the employee’s work performance.
- Not in the Terms of the Employee’s Contract: These benefits should be provided voluntarily by the employer.
By understanding and utilising these criteria, you can offer meaningful perks that enhance employee morale and loyalty without increasing your tax liabilities.
The Financial Advantage
Traditionally, employee benefits are taxed similarly to regular salary, impacting corporation tax, VAT, income tax, and NIC. However, trivial benefits provide a tax-efficient alternative. For example:
- Dividends: If you distribute dividends and fall into the basic or higher rate taxpayer bracket, you could save up to 25% or even 45% compared to salary costs.
- Salary: If you’re paying salaries within the basic or higher rate taxpayer brackets, potential savings can range from 40% to 49%.
By integrating trivial benefits into your compensation strategy, you can retain more earnings while still providing valuable perks to your team.
Types of Trivial Benefits
Here are some popular trivial benefits that MSP owners can consider:
- Gift Cards: Small denomination gift cards for popular retailers.
- Holiday Gifts: Festive treats or small holiday gifts that boost morale.
- Team Lunches: Occasional team lunches or snacks within the £50 limit.
- Wellness Perks: Items promoting health and well-being, like fitness trackers or yoga mats.
- Celebration Gifts: Tokens for birthdays, anniversaries, or company milestones.
These benefits, though modest, can significantly impact your team’s satisfaction and loyalty.
Examples of Trivial Benefits and Tax Savings
To illustrate the potential savings, here are some examples of trivial benefits and the corresponding tax savings:
| Benefit Type | Cost per Item | Tax Impact (Without Benefit) | Tax Impact (With Trivial Benefit) | Savings per Item |
| Gift Cards | £50 | £20 (40% Tax Rate) | £0 | £20 |
| Holiday Gifts | £40 | £16 (40% Tax Rate) | £0 | £16 |
| Team Lunches | £50 | £20 (40% Tax Rate) | £0 | £20 |
| Wellness Perks | £45 | £18 (40% Tax Rate) | £0 | £18 |
| Celebration Gifts | £50 | £20 (40% Tax Rate) | £0 | £20 |
Annual Savings Calculation for a 30-Employee MSP
Let’s see how these savings can add up over a year for a business with 30 employees. Assume you provide each type of trivial benefit to each employee once a year:
| Benefit Type | Cost per Item | Number of Employees | Total Cost | Total Savings per Year |
| Gift Cards | £50 | 30 | £1,500 | £600 |
| Holiday Gifts | £40 | 30 | £1,200 | £480 |
| Team Lunches | £50 | 30 | £1,500 | £600 |
| Wellness Perks | £45 | 30 | £1,350 | £540 |
| Celebration Gifts | £50 | 30 | £1,500 | £600 |
| Total | £7,050 | £2,820 |
Additional Tax-Free Benefits
Beyond trivial benefits, there are several other tax-efficient perks you can offer:
- Pension Contributions: Invest in your team’s future with tax-efficient pension plans.
- Company Mobile Phones: Provide mobile phones to employees, enjoying the associated tax benefits.
- Childcare Support: Assist employees with childcare costs without the tax burden.
- Annual Staff Functions: Host events for your team, tax-free, as long as they stay within the £150 per head limit.
- Cycle to Work Scheme: Encourage cycling to work, which offers both health benefits and tax savings.
- Workplace Training: Invest in employee development and claim tax relief.
- Employee Car Parking: Offer convenient parking options and enjoy tax advantages.
- Certain Life Insurance Policies: Provide life insurance policies that protect employees’ families while being tax-efficient.
Conclusion
Incorporating trivial benefits into your compensation package is a savvy way to enhance employee satisfaction and loyalty without incurring additional tax burdens. These small but impactful perks can significantly contribute to a positive workplace culture, keeping your team motivated and engaged. As an MSP owner, leveraging these benefits not only supports your employees but also helps you manage your business’s finances more effectively.