Financial Advice

Rewarding Employees With The Tax-Free Small Benefit Exemption

By December 2020December 11th, 2020No Comments
Rewarding Employees Through The Tax-Free Small Benefit Exemption - Beyond Accounting Dublin Ireland

If you give gifts or perks with a monetary value to your employees, they must be treated as taxable income. It’s called a benefit-in-kind, or BIK. Luckily, there is a scheme in Ireland that allows you to reward your employees with a gift of up to €500 per year, completely tax-free. The Small Benefit Exemption has been around since 2004 but lots of employers are still unaware of it.

What’s so great about it? Imagine you wanted to give a bonus to an employee at the end of the year. If you added €500 to their December salary you may, depending on their tax bracket, have to match that amount with up to €653 in payroll taxes. Suddenly your generous gesture is costing you considerably more than you thought! With the small benefit exemption, a gift of €500 costs you €500 and no more.

Here’s everything you need to know to stay within the conditions.

You cannot give cash to your employees

To count as a Small Benefit Exemption, the gift must be in a non-cash form. If you give your employees cash, this will have to be taxed. Store gift cards and the multi-retailer vouchers One4All, Allgifts, and Me2You are popular ways to give this small benefit. The downside with these vouchers is that they can only be spent in the shops or outlets that accept them.

Any employee is eligible for a small benefit

You can give this benefit to any employee of the company, including directors and shareholders, as long as they are on the payroll. Part-time employees qualify too. It’s just important not to use the benefit as part of a salary sacrifice arrangement. And, of course, there is no obligation to give a benefit to all employees, you may choose to give only to a select group, and you may give different amounts to different employees. It’s entirely up to you.

You can only give the amount in one go

How much you decide to give is your choice, but the absolute maximum is €500 for any employee. If you give more than €500, the entire amount is subject to PAYE, USC, and PRSI. You can also only give this benefit once in the year. It’s not possible, for example, to give half in the summer and half at the end of the year. If you do this, only the first benefit would remain tax free.

You can give the benefit at any time

It seems to be quite common to give this benefit towards the end of the year, like a Christmas bonus. But you could give this benefit to employees at any point in the year should you wish, there is no specific period of the year that it relates to.

It’s straightforward and a win-win for both sides

What I like about this exemption is its simplicity. You don’t have to register or fill out any special paperwork to benefit from it. It’s open to any employer and completely voluntary. You could offer the benefit one year and not the next if that’s what you wanted to do.

This is a nice way to incentivise and personally reward an employee. They get a little something extra and you haven’t had to pay any payroll taxes on the amount given. Just be aware that if you ever get audited, your accounts will need to show that the total amount invoiced using the exemption does not exceed the number of employees multiplied by €500.

There are many different ways to give a non-cash gift

I mentioned above that store cards and the vouchers like One4All are popular options. But you could opt to buy gym membership, spa treatments, or concert tickets instead. And, thanks to the fintech revolution, there are now various alternatives to store gift cards in the form of prepaid cards that can be spent in any shop or business that accepts Mastercard (a few options are listed below). Just make sure, if you opt for a prepaid payment card, that it’s not a type that allows for ATM withdrawals as this means the benefit could be converted into cash and therefore wouldn’t qualify for the exemption.

Allgo

This option allows you to award points to your employees throughout the year and then you can reward those points with the appropriate benefit amount at the end of the year. This is a nice option if you are linking the benefit to their day-to-day performance.

Perx

The Perx Reward prepaid card will allow people to spend online or offline wherever Mastercard is accepted – so it can be used worldwide. Like other similar cards, users can create an online account to check their balance.

Swirl

Swirl’s gift card can also be accepted worldwide at any outlet that accepts Mastercard – online or offline – and is fully compliant with the small benefit exemption.

If you would like support running your business more efficiently and effectively, we have a range of services that could help. We offer financial coaching and financial health checks, or you may need a more hands-on service such as outsourced CFO or outsourced management accounting. To know more about how we could help, get in touch.
Rory