The Small Benefit Scheme (SBS) is the main employee reward tax relief scheme offered by Irish Revenue.
The Small Benefit Scheme allows you to give up to €500 of rewards to your employees that are NOT subject to any Benefit-In-Kind (BIK) tax for the employee, or employer tax (Employer PRSI) for the company.
In addition to the Small Benefit Scheme, Irish Revenue offers employers a variety of other ways to reward employees in a tax efficient manner. These other schemes include-
1. Staff Discounts
You can reward employees by offering a discount on goods or services that you produce or sell in your business. The discounts offered are completely free of Benefit-In-Kind as long as:
- The amount paid by the employee is greater than or equal to the costs incurred by the employer to provide them with the item, and
- The goods cannot easily be changed into cash (ie employees cannot sell the item easily).
2. Cycle to Work Scheme
Under this scheme, employers can buy a new bicycle and safety equipment for employees tax-free up to a limit of €1,000. If the employer pays for the new bicycle, the employee is exempt from tax on the benefit up to €1,000.
The other option is for the employee to pay for the bicycle through a "salary sacrifice" scheme. In this case, the employer pays for the bicycle initially, and then deductions are made from the employee's gross salary normally over 12 months. In this way, the employee saves the PAYE, PRSI and USC on the value of the bicycle.
3. Travel Passes
Employers may provide a monthly or annual travel pass for bus, train, Luas or ferry services to employees without it being subject to BIK taxes.
The bus, train, Luas or ferry pass must be issued by public or private operators who hold valid licences. Car parking charges are not included in this scheme.
Like the Cycle to Work Scheme, the employer can either pay for the entire travel pass completely tax free, or operate
a salary sacrifice scheme, where the employee would save the PAYE, PRSI and USC on the value of the travel pass.
4. Long Service Award
Employers can reward employees for significant long service completely tax-free as long as ALL the following conditions are satisfied –
- the award is made for long service of at least 20 years.
- the award takes the form of a tangible article(s) of reasonable cost (ie no gift cards or vouchers).
- the cost does not exceed €50 for each year of service.
- no similar award has been made to the recipient within the previous 5 years.
- The award must NOT be in the form of cash, vouchers, bonds etc.
So for example, if an employee has 20 years service, the employer can give them a physical gift worth €1,000 without any BIK.
However, because of the numerous restrictions with this long service scheme, some employers opt to use the Small Benefit Scheme instead to make service awards tax-efficient, especially for service awards less than 20 years, and where the €500 Small Benefit limit is sufficient.
5. Company Events
Many companies organise social events for team building and employee engagement.
These events are often regarded as being part of the employee reward strategy. Revenue allows for seasonal parties and other inclusive events - eg Christmas parties, special occasion meals or other inclusive events, such as sports days, for your employees.
The cost of these events are not subject to BIK, provided -
- the expenses incurred are reasonable and,
- The event is available to all employees.
6. PAYE Settlement Agreement (PSA)
If an employer wants to make regular rewards to employees that are not part of any tax-free reward scheme, then Revenue offers a facility to make the payment of the BIK on the rewards easy and efficient.
Employers can apply for a PSA (PAYE Settlement Agreement). Once approved, the employer can then issue rewards all year without reflecting the rewards in PAYE tax returns or payroll.
Then at the end of the year, the employer can make a single return to Revenue with the total value of all rewards issued.
The employer calculates the gross amount of the rewards by factoring in the PAYE, PRSI and USC, and Employers PRSI. The employer then submits the Gross Reward Figure to Revenue, together with a list of the employees who received rewards (and their PPS numbers).
The company can then make a single payment for PAYE, PRSI and USC, and Employers PRSI for the previous year via ROS by 15th February. So even though the rewards are subject to BIK on the "grossed-up" amount, the taxes do not have to be calculated in payroll, and the rewards themselves do not appear on employees' payslips or P60s.
Guide to Small Benefit Scheme 2019
Our 2019 Expert Guide to the Irish Revenue’s tax-free employee reward scheme gives you expert info, insights and case studies for getting the most out of the scheme. Download it for free today by clicking the Download Now.