Once a year, employers are allowed to give their employees a tax-free non-cash benefit of up to €500. Unlike cash bonuses which are taxable, benefits provided under the Small Benefit Exemption Scheme do not have to be put through payroll and are not liable for PAYE, PRSI or USC.
Advantages for the employer
When you give a cash bonus to an employee, tax legislation requires that you add the value of the bonus to your employee’s pay and deduct Income Tax, PRSI and USC. So, to give an employee on the higher rate of Income Tax an after-tax bonus of €500 would potentially cost €1,153.65 when processed through your payroll. However, under the Small Benefit Exemption Scheme, you can provide a non-cash benefit equivalent in value to €500 without incurring a tax liability for you or your employee. This represents a potential saving of €635.65 per employee.
What are the conditions to avail of the Small Benefit Exemption Scheme?
While benefits provided under the Small Benefit Exemption Scheme cannot be cash (or redeemable as cash), they can be provided by way of goods, services, or gift vouchers (such as One4All or supermarket vouchers) as long as these cannot be exchanged for cash.
Employers must pay for the benefits using business funds.
The value of the benefit given to each employee can be anything up to a maximum of €500. It is important not to exceed the limit. If the benefit’s value goes over €500, the entire benefit will be subject to PAYE, PRSI and USC.
Benefits under the Scheme can only be provided once a year. If you give more than one benefit to an employee during the year, only the first one qualifies for tax free status even if the total value does not exceed €500.
If your employees worked during the COVID-19 restricted period, Revenue will waive the condition that only one benefit can be issued per year. However, if more than two benefits are provided, only the first two will qualify for the Small Benefit Exemption. To avail of the concession you must retain the appropriate documentation.
Christmas is a wonderful time of the year to reward employees for their hard work and gift vouchers are an excellent way to provide a meaningful gift without incurring a tax liability for you or your employees. To avail of the Small Benefit Exemption Scheme it is important to act before 31 December as the benefit cannot be carried over from one year to the next. For further information and advice contact ifac’s HR & Payroll Services team.