The opportunity of rewarding employees tax-free with the Small Benefit Scheme is a huge financial advantage to companies in Ireland. From providing thousands of tax-free vouchers and reward programmes to hundreds of Irish companies, here are 3 Things that every Irish Finance Director should know about the €500 tax-free reward scheme.
For comprehensive information, download our Definitive Guide to the Small Benefit Scheme.
1. Any benefit will do, but.....
The scheme allows for any non-cash reward to be given to employees up to a gross value of €500 (as long as 4 key criteria are met). In theory, this allows companies to be creative in what reward they use for the scheme - it could be a Christmas hamper, a subscription to a gym or club, or even the company's own products or services.
The rule for calculating the value of the benefit itself is the higher of:
- the cost in providing the benefit
- the market value of the benefit
In practice, most companies elect to use gift vouchers or gift cards for the scheme. This is for 2 very good practical reasons: 1. they are much easier to distribute to staff than physical goods, and 2. they are much more popular with staff as they give a degree of choice to what they are spent on, and are perceived as the nearest thing to cash that still qualifies for the scheme.
In choosing vouchers or gift cards, there are two main types that Financial Controllers normally consider:
- Single brand retail gift cards
- Multi-retailer gift vouchers / gift cards
The attractiveness of single brand gift cards for Finance Department is that retailers give discounts on their own brand vouchers if bought in bulk. In particular, supermarket gift cards are popular here - eg Dunnes, Super Valu and Tesco to name but a few.
Staff tend to prefer the widest possible choice, and that's why multi-retailer vouchers - like One4All, Allgo Rewards Gift Cards, AllGifts Vouchers - are very popular. Even though they don't offer Financial Directors the same opportunities for discount as single retail brands, these afford a greater redemption choice that employees really value.
2. No salary sacrifice, but bonuses are big
Irish Revenue has taken the view that salary sacrifice (ie reducing a salary payment in one month and replacing it with a tax-free benefit) is not compatible with the Small Benefit Scheme.
However, the paying of company bonuses under the scheme is allowed and is becoming increasingly popular. Typically, companies pay the first €500 of a annual bonus tax-free on the scheme through gift cards, and then pay any bonus amount in excess of that through payroll. As a matter of procedure, some companies give employees an opt-out option, just in case they would prefer to be paid all bonuses through payroll, subject to the normal tax.
If bonuses are guaranteed, however, they may form part of a "normal salary", and therefore be disqualified from the scheme on salary sacrifice grounds.
3. No returns need be made to Revenue
A great advantage of the Small Benefit Scheme is that it is very straightforward to administer from an Irish Revenue point of view. Revenue only stipulates that if the 4 Key Rules are adhered to, then any company can “give employees a small benefit of up to €500 in value, tax free, each year.”
If a company employees X no. of employees it can order X x €500 in rewards, be invoiced for the total amount, and simply show the invoice and no. of employees on the payroll for any Revenue audit. So no formal return and no paayroll adjustment need be made on a correctly administered Small Benefit Scheme.
Having said that, it is recommended that companies record the payouts made on any reward programme, and internally check that the combined rewards made to employees in a year adhere to the scheme rules, so that this documentation can be shown to Irish Revenue for any possible future company audit. Read more of our expert blogs on the €500 Small Benefit Scheme here
For more about the Small Benefit Scheme, download our definitive guide -