Would you like to know how directors and employees can be paid up to €500 tax-free? Under the Small Business Exemption Scheme, directors and employees are eligible to receive a non-cash bonus of up to €500.
Tax-free vouchers are an efficient way to reward your staff during the year or with a bonus this Christmas. Provided certain guidelines are followed, neither your company nor your employees will pay PAYE, PRSI or USI, potentially saving a total of €653.65 in tax per employee. If you haven’t availed of the Small Benefit Exemption Scheme so far in 2018, make sure you do before 31st December!
Which Types of Gifts Qualify For Tax Exemption?
Any non-cash gift up to the value of €500 qualifies for the Small Benefits exemption, including:
- Gift Vouchers
- Retail vouchers
The Background to Tax-Free Vouchers
In 2016, we saw the Small Business Exemption Scheme threshold double from €250 to €500. The tax-free vouchers are popular amongst companies who want to reward their employees with Christmas bonuses.
It’s particularly popular with owners/directors of small businesses who also have their spouse work in the same establishment, as they could benefit from up to €1000 in tax-free vouchers.
There is no paperwork involved and no return to be made to avail of the scheme. Companies (or sole traders) are simply invoiced for the total value of tax-free vouchers ordered. The invoice is treated as a fully deductible business expense for accountancy purposes, and there is no need to adjust payroll – provided the rules listed below are followed.
So, What Are The Rules?
We have outlined the necessary guidelines below to help you qualify for the tax exemption:
1. Tax-free vouchers must be purchased from company funds. Tax-free vouchers must be purchased from the business bank account or credit card. It is important to note – directors or employees cannot purchase a voucher themselves and seek reimbursement from the company.
2. The scheme can only be availed of once per year. Only one tax-free voucher can be paid to an individual in any one year, even if you do not avail of the maximum annual allowance of €500. If more than one bonus is given in a year, it is only the first one that will qualify for tax-free status.
Any unused allowance cannot be carried over to the following year. For example, if you reward an employee in January with a €100 gift voucher, the tax-free allowance is used up in its entirety for the complete year.
3. Salary sacrifice is not allowed. You cannot fund the scheme from a deduction from your employee’s salary. You must get invoiced for the rewards and pay this external to payroll.
4. The benefit must be provided in a non-cash format e.g. gift voucher, which cannot be converted into cash. As the payment must be in a non-cash form, the most common way to avail of this scheme is by purchasing gift vouchers.
How Much Tax Can I Save?
- The scheme allows both the employer and employee to save tax. For example, a higher rate taxpayer paying 40% PAYE will save up to €542 in tax by availing of this scheme.
- The taxpayer’s net after-tax salary to pay for the voucher is €500. In order for the taxpayer to obtain this cash, they require a gross salary €1,042.
- The difference of €542 is a combination of PAYE, USC, and PRSI which would be deducted if you received this amount in a salary.
- The employer also saves 10.75% Employers PRSI for people on the A class rate of PRSI – the majority of private sector employees.
|PAYE (40%) Higher Rate Taxpayer||€417|
|Total Tax Saved||€542|
Tax-Free Voucher Options
In no particular order we have listed possible options for tax-free gift vouchers that qualify for the Government’s Small Business Exemption Scheme:
One4all are a common choice for tax-free gift vouchers. They offer a wide range of gift card designs for every occasion with over 8,500 stores to choose from nationwide. To see the full list of retailers, visit their website; https://www.one4all.ie/.
Allgo has several products that clients can use to take advantage of the Small Benefits Exemption Scheme. The Allgo rewards card is perfect for large numbers of staff who want a flexible gift card for use in-store. AllGifts Vouchers are multi-retailer vouchers, branded and personalised with your company logos and messaging.
For companies looking to use the Small Benefits Exemption Scheme for year-round programmes, Allgo has developed two services that allow companies to award points to employees throughout the year, with the restriction that the employees can only spend them at year end. For more information, head on over to their website; https://www.allgo.ie/rewards/tax-free-staff-rewards/