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 €500 once a year. The most common way to avail of this is through vouchers.  It’s a tax-efficient way to reward your staff during the year or give 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 2020, make sure you do before 31st December!

In this blog, you’ll learn:

  • The background to tax-free vouchers.
  • The Small Business Exemption Scheme rules.
  • How much tax can I save?
  • Tax-free voucher options.

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. Business owners 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.

The Small Business Exemption Scheme rules

We have outlined the necessary guidelines below to help you qualify for the tax exemption:

  • 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 – directors or employees cannot purchase a voucher themselves and seek reimbursement from the company.

  • Once per year

    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.

  • Non-cash format

    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.

  • A 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.

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% of Employers PRSI for people on the A-class rate of PRSI – the majority of private-sector employees.
Gross Salary  €1,042
PAYE (40%) Higher Rate Taxpayer €417
PRSI (4%) €42
USC (8%) €83
Net payment €500
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:

  1. 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;
  2. Allgo is perfect for large numbers of staff who want a flexible gift card for use in-store. Businesses looking to use the Small Benefits Exemption Scheme for the year-round programme can avail of Allgo’s services. AllGifts Points is a scheme that awards 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;

If you have other ideas for the tax-free voucher scheme, talk to your accountant to ensure they comply with the rules.

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