Tax-free gift vouchers for directors and employees
Under Irish Revenue’s Small Business Exemption Scheme, directors and employees can receive a non-cash bonus of up to €1,000 once a year.
The most common way to do this is through vouchers or gift cards. It’s a tax-efficient way to reward your staff during the year or give a bonus this Christmas.
So long as you follow specific guidelines, neither your company nor your employees will pay PAYE, PRSI, or USI, potentially saving your company over €1,200 in tax per employee.
If you still need to take advantage of the Small Benefit Exemption Scheme, ensure that before 31st December. Remember, you can only claim employee tax-free vouchers once a year, and you can’t carry them forward!
When to give tax-free vouchers?
Vouchers are popular amongst companies who want to reward staff bonuses tax-free.
It’s also popular with owners/directors of small businesses with their spouses working in the same establishment, as they could benefit from up to €1000 in tax-free vouchers. Note that directors and spouses must be on the payroll to avail of this scheme.
No paperwork is involved, and you don’t need to file a separate tax return to avail of the scheme. Business owners should record the invoice for the total value of tax-free vouchers ordered, and the invoice is treated as a fully deductible business expense for accountancy purposes. There is no need to adjust payroll – provided the following rules are followed.
The Small Business Exemption Scheme Rules
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Must be purchased from business funds
Tax-free vouchers must be purchased from the business bank account or credit card. It is important to note – employees cannot buy a voucher themselves and seek reimbursement from the company.
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Twice per year
Only two vouchers can be paid to an individual in any year, even if you do not avail of the maximum annual allowance of €1,000. If you give more than two bonuses yearly, only two will qualify for tax-free status.
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Non-cash format
The gift voucher cannot be converted into cash to qualify for the Small Business Exemption.
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A salary sacrifice is not allowed
You cannot fund the scheme by deducting your employee's salary. You must get invoiced for the rewards and pay this external to payroll.
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Recipients need to be on payroll
Directors who avail of this scheme must be on the company's payroll to qualify.
How much tax can I save per €500 voucher?
| Small Business Exemption Rules | Normal payroll in order to receive €500 (i.e. after tax) | |
| Gross payment | €500 | €1,042 |
| PAYE | 0% | @ 40% = €417 |
| PRSI – employee | 0% | @ 4% = €42 |
| USC | 0% | @ 8% = €83 |
| Total employee tax | €0 | €542 |
| Net payment | €500 | €500 |
| PRSI – employer tax | 0% | @ 10.75% = €112.015 |
Total tax saved: €654
How to avail of tax-free vouchers
Employers can use the scheme at any time, as long it is only used once a year per employee.
1. Choose a voucher
The voucher can be up to €1,000, and the scheme can be split between two vouchers. For instance, you can purchase two vouchers for €500 each annually.
2. Purchase the voucher
When you have made the purchase, make sure that you keep the invoice. We recommend using online bookkeeping software to make sure you are organised.
3. Tax-deductible expense
Treat the invoice as a tax-deductible expense. Your accountant will look for these records when doing your tax return. Get in touch if you have any questions.
Tax-free voucher options
Universal gift cards
Store vouchers
Experience vouchers
Larissa is a Fellow Chartered Accountant (FCA) and is the CEO of Accountant Online, which specialises in company formation, company secretarial, annual accounting services, bookkeeping, tax, and payroll services for micro and small companies in Ireland and the UK.
