Small Benefit Scheme Rule Change

Tax free vouchers for employees and directors

A Small Benefit Scheme rule change and a doubling of the exemption limit means that employers can now reward their staff with up to two tax-free non-cash benefits each year subject to a total value of €1,000 per employee, explains ifac’s Lynette Kelly.

In his Budget 2023 speech on 27 September 2022, Minister for Finance Paschal Donohoe announced an increase the annual limit for the Small Benefit Scheme. The change is due to come into effect for the current year and will have implications for employers who avail of the scheme to provide gift vouchers for their employees this Christmas.

What is the Small Benefit Scheme?

The Small Benefit Scheme is a tax relief that allows employers to give their employees and directors a tax free small benefit subject to certain limits provided the benefit is not in cash. Up to now, if more than one benefit was given to an employee in any year, only the first one qualified for tax free status.

What is changing?

Under measures announced in Budget 2023, the value of the small benefit that can be given tax-free has doubled from €500 to €1,000 and the scheme rules have been revised to allow employers give employees up to two vouchers in a single year provided that the total value of the vouchers does not exceed €1,000 per employee.

Advantages of the scheme

From the employer’s perspective, the Small Benefit Scheme is a tax-efficient way to reward employees. Compared to paying an employee an additional €1,000 through payroll, a non-cash benefit of €1,000 paid via the Small Benefit scheme is not liable for PAYE, PRSI or USC so depending on the recipient’s tax band the potential saving for the employer is up to €1,313.55.

With Christmas just weeks away, now is the time to decide whether you want to avail of the Small Benefit scheme this year. For more information and/or advice, contact your local ifac office.