Example 1: Dividends

To receive £300 as dividends in your pocket, after higher rate dividend tax at 32.5%, would need a dividend declared of £444.

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If your Ltd Company pays trivial benefits totalling £300 during the year, the net cost is £243 due to saving Corporation Tax of £57. Therefore, the total saving is £201 (£444 - £243).

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If your partner/spouse is also a director shareholder, then the tax saving would be £402.

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Another way of looking at this calculation for 1 director shareholder is that the company's retained earnings would decrease by £444 by paying out a dividend, while paying £300 in trivial benefits instead would reduce retained earnings by £243.

Example 2: Salary

To received £300 salary in your pocket, after PAYE and NI of £217, would need a gross salary payment of £517. There is also an extra cost to the company of £71 due to Employer NIC. However, these costs are deductible against Corporation Tax, saving £112, meaning a net cost of £476.

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If your Ltd Company pays trivial benefits totalling £300 during the year, the net cost is £243 due to saving Corporation Tax of £57. Therefore, the total saving is £233 (£476 - £243).

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If your partner/spouse also works for the company, then the tax saving would be £466.

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Another way of looking at this calculation for 1 director is that the company's retained earnings would decrease by £476 by paying out a salary, while paying £300 in trivial benefits instead would reduce retained earnings by £243.

RULES

The basic rules are that trivial benefits:

• cannot exceed £50 per benefit.
• cannot be exchanged for cash
• must not be a reward for services or in any way contractual.

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Trivial benefits rules also apply to employees who are not directors, without the £300 limit per tax year.

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Download our guide and template letter to make it easy to provide these benefits and save tax.