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How to use the Small Benefit Exemption Scheme for your business

Money Matters

How to use the Small Benefit Exemption Scheme for your business

As Christmas approaches, you may be looking for a way to show your employees your appreciation of their hard work during the year.

You know a cash bonus would be welcome but by the time taxes including pay as you earn (PAYE) income tax, universal social charge (USC) and pay related social insurance (PRSI) are deducted, the net sum will be significantly reduced.

However, there’s another way that employers can reward their workers without incurring taxes: by giving them a bonus or gift using the Small Benefit Exemption Scheme.

If you haven’t heard of the exemption scheme, don’t worry.

In this article, we cover details of the scheme and how it can benefit your employees and your business:

What is the Small Benefit Exemption Scheme?

How much can employers save by using the scheme?

How employees can benefit from the scheme

How employers can start using the scheme

What employers can offer their staff

Final thoughts on the Small Benefit Exemption Scheme

The Small Benefit Exemption Scheme was first introduced in the 2004 Budget.

The exemption in respect of non-cash gifts or rewards given by employers to their employees was brought into legislation with the 2016 Finance Bill and the amount was doubled from €250 to €500.

However, as part of Budget 2023, two changes were announced to the scheme:

  • The benefit is now €1,000 for each employee per year, up from €500
  • Employers can give their employees up to two tax-free rewards in a year, rather than one, up to the threshold of €1,000.

And this applies for the existing 2022 tax year, and beyond.

Niall Donnelly, tax director at UHY Farrelly Dawe White Limited, describes the small benefit exemption as “a simple but excellent scheme that allows employers to reward their employees in a tax-efficient way”.

A summary of the guidelines under the scheme are as follows:

  • The benefit must not be in cash. Gift cards and vouchers are popular ways to avail of the scheme.
  • The amount of the benefits must not exceed €1,000 – if they do, the full amount is subject to tax.
  • No more than two tax-free benefits per employee per year. Subsequent benefits will be subject to tax.
  • The amount can’t be a salary sacrifice. This means you can’t offset the amount against the employee’s pay. The gift or voucher must be paid for outside of payroll.

You don’t have to give the full benefit of €1,000 available. Small business owners may be unable to afford to give each employee €1,000 and prefer to gift a lesser amount. That’s fine – any amount up to a maximum of €1,000 is allowed.

Employers can make considerable savings by using the exemption to reward their employees.

According to gift voucher company One4All, if you were to put a bonus of €1,000 through payroll for an employee who’s on the higher tax band and pays PRSI and tax, it would cost your business €2,313.54.

By using the exemption, you can make potential savings of up to €1,313.54 per employee compared to putting it through payroll.

Any employee on your company’s payroll – both part time and full time – who pays PAYE income tax, PRSI and USC can benefit from the scheme. How much they save in taxes depends on the tax rate they’re on and what level of USC and PRSI they pay.

Your employee receives the full value of the bonus, which they can use as they wish.

Donnelly comments that the number of employees who can benefit from the scheme is unlimited.

Using the scheme is straightforward. There is no need to file a return or make adjustments to payroll.

The employer purchases the vouchers and the invoice is treated as a fully deductible expense.

Donnelly explains: “The employer simply provides the voucher/benefit to the employee and does not subject it to tax through the normal employer payroll system. The benefit is entered as a ‘non-taxable benefit’ on the system.”

If the company is audited, its accounts will need to show that the total amount invoiced using the exemption doesn’t exceed the number of employees multiplied by €1,000.

The important thing to remember is that the benefit can’t be paid in cash. Examples of benefits that can be given include:

  • Gift cards
  • Vouchers for department stores
  • Vouchers for grocery stores
  • Gym memberships
  • Spa treatments
  • Concert tickets.

Allan Pryal, formerly of Expert Payroll, says gift vouchers and store gift cards are among the most popular ways that employers are rewarding their employees.

He notes that employers are free to implement the scheme as they wish, provided they follow the rules.

Some companies that promote the Small Benefit Exemption Scheme include One4All, which has thousands of online and national participating outlets, and Allgo reward card, which offers an employee incentive points system for companies.

Donnelly says tax-free vouchers, tickets or benefits can be used only to purchase goods or services and can’t be redeemed for cash.

He reminds employers not to exceed the maximum amount allowable under the scheme.

The Small Benefit Exemption Scheme is a great way to show your appreciation for your employees. You can use it to give your staff an end of year bonus or a Christmas gift.

To sum up, here are a few points to note:

  • The benefit must not be paid in cash – cash benefits are fully taxable.
  • Only two tax-free benefits can be given each year, up to €1,000.
  • Where the gift or voucher exceeds €1,000, the full value is subject to PAYE, USC and PRSI.
  • The benefit cannot be part of a salary sacrifice arrangement.
  • The employer must buy the voucher. So, for instance, an employee can’t purchase it with the intention of being reimbursed.

Whatever way you avail of the exemption, the small benefit relief offers considerable savings for you and your employees.

Editor’s note: This article was first published in November 2019 and has been updated for relevance.

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Comments (11)

  • Is there somewhere we need to sign up for this, or just add it to the payroll?
    Thanks

    • Hi Kelley,

      You should have the Gift Cards option along the top of your Sage Payroll software, then click One4all.

      You can follow the steps and watch the video guide within this guide http://1sa.ge/LWDW50EjFdE to purchase One4all vouchers for employees from within Sage Payroll.

      Regards,

      Paul
      Sage UKI

  • HOw do you record the voucher in Sage.. with or without tax value?

    • Hi Tara,

      You can follow the steps and watch the video guide on this guide http://1sa.ge/PuHH50EjF22 to purchase One4all vouchers for employees from within Sage Payroll.

      You can follow the steps in this guide to set up and record a benefit in kind http://1sa.ge/hT9W50EjF23 in your Sage Payroll software.

      Regards,

      Paul
      Sage UKI

  • Learnt a lot from this post! Cheers 🙂

  • Hello.

    A number of our employees have revolut Cards/Accounts, can we transfer the funds to the employees revolut account?

  • Hi

    i read that this year there is exemption from the rule. See below copied from revenue web.
    Small Benefit Exemption
    Section 112B of the Taxes Consolidation Act 1997, allows one incentive per year up to the value of €500 to be given to an employee by his or her employer tax free, provided certain conditions are satisfied. The incentive may be a voucher or other tangible item, such as a hamper. The incentive cannot be cash or redeemable for cash.

    Where an employer wishes to recognise efforts of frontline or other key staff working during the COVID-19 crisis, either by accelerating part of a reward incentive usually paid later in the year, or making an additional award, the requirement that only one incentive issues (as per s112B(1)(d)) is concessionally waived for the 2020 tax year, where the additional award is related to an employee’s exceptional efforts during the COVID-19 crisis.

    This concession only applies to employees who continue to work during the restricted period. All other conditions of the section must be met, for example the maximum (cumulative) value may still not exceed €500 but, as stated above, the requirement to only issue one incentive will be waived. Appropriate documentation must be retained by an employer where this concession is availed of.

    its bit confusing – will this mean that someone had to work all year through without to be layoff or been sick, to be able to avail of for example 5 x 100 vouchers -= 500 euro and be tax free?

    regards
    Joanna

  • Hi – I’m looking to purchase a €500 One4All voucher for an employee who is retiring next week. However, Sage payroll does not allow me to purchase vouchers for more than €150. The instructions are to purchase multiple vouchers to make up a total of €500. Unfortunately, Revenue states that only the first voucher is allowed to be tax free, and subsequent vouchers must be taxed. Your own website states that “Only one bonus can be given each year. If the €500 is split into two or more payments, only the first voucher will be tax-free.” Can you tell me why it is impossible to buy one voucher for one employee for €500? It does seem arbitrary to me to only allow the amount €150? I have checked the wording of the Revenue website, and I am not happy to take a chance on this.

    Thank you,

    Mary Irwin

    • Hi Mary,

      You can use the Gift Cards option in Sage Payroll to quickly purchase One4all gift cards for your employees.

      The employee names and gift card amounts are sent directly to the One4all shopping basket, meaning you don’t need to manually enter your employee names and amounts.

      To purchase the gift card/s:

      1. Click Gift Cards, then click One4all.
      2. In the gift card window, ensure the Employer Contact Information is complete and correct. This information is used by One4all to create your account.
      3. In the Gift Card Value (€) field, enter a value between 15 and 150 for each employee you wish to receive a gift card. The maximum gift card amount that One4all allow you to purchase is €150. For amounts over this value, you need to order multiple gift cards. For example, to buy €300 you need to order two €150 gift cards. If you have any queries about this you can contact One4all for further information at https://www.one4allrewards.co.uk/contact-us
      4. Click Purchase on One4all website.

      The One4all website is then launched, showing the employee names and the amount of your purchased gift cards. You can complete your purchase on this screen.

      Regards,

      Paul
      Sage UKI

  • Do vouchers given have to benefit the Irish economy? I.e. could an employer give vouchers from Amazon?

    • Hi Larry,

      This is something you’ll need to check with Revenue. You can visit their website at http://www.revenue.ie or contact them directly to discuss this on (01) 858 9843.

      Regards,

      Paul
      Sage UKI