Trivial Benefit Loophole Accounting Conundrum

ItsJustMeJane

I have a hypothetical question! I was reading about Trivial Benefits and a strange possible scenario came to mind. Just curious on if anyone thinks there is a clear cut answer to this. Keep in mind, I'm not applying this to anything like my accounts, I just thought it was a fun accounting query :cool2:

Say a company gives a director a £40 Amazon gift card (assuming these can't be exchanged for cash) for their birthday and expenses this as a trivial benefit against their taxes. Later that director needs to make a purchase on Amazon on behalf of the company for a keyboard. They purchase it using their giftcard, and then include this in their directors loan account, where the company will now owe the director for the keyboard, and can expense that cost against their taxes. Essentially here, they have expensed twice on 1 transaction (the initial purchase of the gift card.)

I feel like this sounds super off, but at the same time, I can't really see why this would not be allowed? What are your thoughts?

PS I would not in any way recommend anyone do this without speaking to an accountant.

Pennywise

Putting it to the director's loan account makes it effectively an exchange for money, so the original gift probably wouldn't qualify as a tax exempt trivial benefit. The director could be said to have "sold" the gift card.

ItsJustMeJane

Pennywise wrote: »

Putting it to the director's loan account makes it effectively an exchange for money, so the original gift probably wouldn't qualify as a tax exempt trivial benefit. The director could be said to have "sold" the gift card.

Ah that makes sense and is a good point!

tebthereb

Sorry, don’t really understand the conclusion here.

Why does the subsequent business purchase change the tax position of the original benefit provided?

I thought the gift card would remain a trivial benefit, and the business purchase would credited to loan account (debited to P&L).

I don’t see any special tax advantage here though. The company has paid once for the gift card and gets a deduction for that. It then effectively pays for a keyboard and gets a deduction for that. The company’s cash balance may have only reduced once, so far, but it now has a debt to the director.

I suppose there is a minor cash flow advantage. There is also, of course, a limit on the number of trivial benefits that can be provided to a director each year which means any benefit is going to be immaterial.

TheCyclingProgrammer

tebthereb wrote: »

Sorry, don’t really understand the conclusion here.

Why does the subsequent business purchase change the tax position of the original benefit provided?

I thought the gift card would remain a trivial benefit, and the business purchase would credited to loan account (debited to P&L).

I don’t see any special tax advantage here though. The company has paid once for the gift card and gets a deduction for that. It then effectively pays for a keyboard and gets a deduction for that. The company’s cash balance may have only reduced once, so far, but it now has a debt to the director.

I suppose there is a minor cash flow advantage. There is also, of course, a limit on the number of trivial benefits that can be provided to a director each year which means any benefit is going to be immaterial.

The benefit as outlined by OP is that the director is effectively exchanging the £40 gift card (which can only be spent on amazon) for £40 cash by using it to pay for something for the business and crediting it to the DLA (which they can later draw down as £40 cash).

It’s arguably a very minor benefit but the point of trivial benefits is that cash or cash vouchers do not qualify (as Pennywise points out this little accounting trick could be argued by HMRC that the trivial benefit exemption should not apply).

Of course unless you have an inspection and it’s queried it’s unlikely to get picked up and there is a limit to the number of trivial gifts that can be given anyway so hardly seems worth it.

IMO if you want to take advantage of the rule you’re better off just using it to treat yourself occasionally.