Key takeaways
- A trivial benefit costing £50 or less is tax-free if it is not cash, not a reward for work and not in the employee's contract.
- Directors of close companies can receive no more than £300 of trivial benefits in a tax year.
- An annual party open to all staff is tax-free if it costs £150 or less per person in total across the year.
- One mobile phone or SIM per employee is tax-free when the employer holds the contract.
- Employers can pay £6 a week (£26 a month) tax-free towards extra household costs for staff who regularly work from home under an agreed arrangement.
- A non-cash long-service award is tax-free after 20 years' service if it is worth less than £50 per year of service, so up to £1,000 for 20 years.
- Up to £500 of recommended medical treatment is tax-free for an employee who has been off sick for at least 28 consecutive days.
- Most exemptions do not apply if the benefit is provided through salary sacrifice; you must report it instead.
A small business can give staff a range of benefits with no Income Tax, no National Insurance and no P11D, as long as each one meets HMRC’s conditions. The most useful are trivial benefits up to £50, an annual party up to £150 a head, one work mobile phone, the £6 a week homeworking payment, bikes, health checks and welfare counselling. Almost all of them stop being tax-free if you provide them through salary sacrifice.
Which benefits are tax-free?
These benefits are exempt under HMRC’s expenses and benefits A to Z for 2026/27, provided the conditions are met.
| Benefit | Tax-free limit | Main condition |
|---|---|---|
| Trivial benefit | £50 per item | Not cash, not a reward |
| Annual party | £150 per head | Open to all staff |
| Mobile phone | One per employee | Employer holds contract |
| Homeworking costs | £6 a week | Regular, agreed homeworking |
| Long-service award | £50 per year served | 20 years’ service, non-cash |
| Return-to-work treatment | £500 | 28 days’ sickness absence |
| Health screening | One a year | Periodic check or screening |
| Welfare counselling | No cap stated | Available to all staff |
Each exemption has its own rules, set out below. If a benefit fails a condition, it becomes taxable and you report it.
Trivial benefits up to £50
A trivial benefit is tax-free if it cost £50 or less, is not cash or a cash voucher, is not a reward for work or performance, and is not part of the contract. That is the test on GOV.UK’s trivial benefits page.
Directors of a close company, which is one run by five or fewer shareholders, are capped at £300 of trivial benefits a tax year. Our guide to trivial benefits and the £50 rule has worked examples.
Christmas parties and annual events
An annual event is tax-free if it is open to all employees and costs £150 or less per person. If you hold more than one annual event, the total across them must stay within £150 a head.
Virtual parties count. Separate parties for different sites or departments also count, as long as every employee can go to one. See the staff party tax exemption for how to work out the cost per head.
Phones, homeworking and bikes
Mobile phones. One phone or SIM per employee is exempt when you hold the contract with the supplier.
Homeworking. You can pay up to £6 a week, or £26 a month for monthly-paid staff, towards extra household costs. The employee must work from home regularly under an agreed arrangement. Equipment used only for work, or with minor private use, is also tax-free.
Bikes. Lending or hiring bikes to staff is not a taxable benefit if the bikes are available to all employees and mainly used to get to work.
Health and welfare benefits
HMRC exempts several health benefits listed on its medical treatment guidance:
- one health screening or medical check a year
- eye tests and glasses where health and safety law requires them for screen users
- flu vaccinations
- up to £500 of recommended treatment to help someone back to work after at least 28 consecutive days off sick
- welfare counselling for issues such as bereavement, stress or relationship problems, if available to all staff
Private medical insurance is not on the list. It is a taxable benefit unless it covers treatment abroad for staff working overseas or injuries caused by the work.
Long-service awards
A non-cash long-service award is tax-free if the employee has worked for you for at least 20 years, it is worth less than £50 per year of service and they have had no such award in the last 10 years. For 20 years, that allows an award of up to £1,000. Cash awards are always taxable.
Pensions
Employer contributions to a registered pension scheme are not a taxable benefit and do not go on a P11D. They also save employer National Insurance compared with paying the same amount as salary. Use our salary sacrifice calculator to compare the options, and note the coming cap on pension salary sacrifice from 2029.
Which applies to you?
- If you want a small thank-you, use a trivial benefit under £50 that is not linked to performance.
- If you are a director-shareholder, track your trivial benefits against the £300 annual cap.
- If staff work from home, pay the £6 a week through payroll rather than a larger flat sum.
- If you run salary sacrifice, assume the benefit is reportable and check its own rules.
- If a benefit is not on this list, treat it as taxable until you have checked the A to Z.
What to do now
- List every benefit you give staff and match it to an HMRC exemption.
- Keep a record of cost per head for parties and gifts.
- Report anything that does not qualify on a P11D, explained in P60 vs P45 vs P11D.
- If you are unsure, call the HMRC employer helpline on 0300 200 3200.
Frequently asked questions
What benefits can I give employees tax-free?
The main ones are trivial benefits up to £50, an annual party up to £150 a head, one mobile phone, £6 a week for homeworking, bikes for commuting, one health check a year and welfare counselling. Each has conditions.
Is a gift voucher a tax-free trivial benefit?
A non-cash voucher worth £50 or less can be a trivial benefit. A cash voucher, or one that can be exchanged for cash, cannot.
Is private medical insurance a tax-free benefit?
No. It is normally taxable and reported on a P11D, unless it covers treatment abroad for staff working overseas or work-related injuries.
Do tax-free benefits still apply under salary sacrifice?
Usually not. HMRC says trivial benefits, parties, phones, counselling and long-service awards given through salary sacrifice must be reported.
Do I need to report tax-free benefits to HMRC?
No. A benefit that meets all the conditions of an exemption does not need to go on a P11D, and no tax or National Insurance is due.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.
- Expenses and benefits: A to Z (GOV.UK)
- Expenses and benefits: trivial benefits (GOV.UK)
- Social functions and parties: what's exempt (GOV.UK)
- Medical or dental treatment and insurance: what's exempt (GOV.UK)
- Homeworking expenses and benefits that are exempt (GOV.UK)
- Long-service awards: what's exempt (GOV.UK)