The Small Benefit Scheme (SBS) is a statutory tax relief scheme offered by Irish Revenue that allows employers to provide a tax exempt benefit to Irish employees of up to €500 per year.
As an employer, the Scheme allows you to give certain types 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.
From working with hundreds of Irish companies over the past 10 years to provide tax-free rewards under the Small Benefit Scheme, here are the most common questions we get asked.
Q1: Can we use the Small Benefit Scheme to pay bonuses?
A: Yes, up to the €500 threshold as long as the bonus is not guaranteed and seen as part of the employee’s normal salary. Many employers use the scheme to pay the first €500 of any yearly bonus tax-free.
Q2: What happens if I want to give employee rewards twice a year?
A: Only the 1st reward will qualify for the Small Benefit Scheme. For example, you award a €250 voucher in January to an employee, and then another €250 to the same employee in July. The 1st voucher is tax-free, however full BIK and employer PRSI must be paid on the 2nd voucher.
The employer could pay the BIK on this by grossing up the €250 benefit in the employee’s payslip in July, and paying the taxes for them.
Q3: What happens if I want to give an employee a single reward that is over €500?
A: The entire reward is subject to BIK. For example, you award an employee a gift voucher worth €575 in December. It is the first award/gift the employee has received that year. Because the benefit exceeds €500 in value, the full value of that benefit is subject to PAYE, PRSI and the USC.
In this case, the best solution would be to award €500 in tax-free gift vouchers to the employee and process an additional bonus payment of €75 in the employee’s payroll in December. The company can decide whether the employee should pay the tax on the €75 or whether to gross-up the payment and pay the tax on it for the employee.
Q4: Is there any way to use the Small Benefit Scheme year round?
A: Yes! You can extend the scheme throughout the year in conjunction with a qualifying points system, such as Allgo
Points. With this Revenue-approved tool, you can award points to your employees throughout the year, and then have the points converted into gift cards at the end of the year up to max of €500.
Q5: Can company directors and proprietary directors avail of the Small Benefit Scheme?
A: Yes, as long as they are paying income tax, PRSI and USC. As proprietary directors are classified as self-employed, and there is no employer PRSI for self-employed workers, the overall tax-saving may be 10.95% less than for non-proprietary company directors.
Q6: Do part-time employees qualify for the full €500 relief on the Small Benefit Scheme?
A: Yes, they do. No distinction is made by Revenue between full and part-time employees. As long as the person is an employee of the company, they can avail of the full €500 threshold regardless of the number of hours they work.
Q7: Do contractors qualify for the Small Benefit Scheme?
A: Yes. How they qualify just depends on how they get paid. If an external contractor is paid through your company’s payroll, then they can avail of the Scheme through you. If they or their company invoice for their services, they can avail of the scheme by awarding themselves as a self-employed worker or through their own company. They cannot qualify both ways!
Q9: Can self-employed / sole traders workers avail of the Small Benefit Scheme?
A: Yes, as long as they are paying income tax, PRSI and USC. As there is no employer PRSI for self-employed workers, the overall tax-saving may be 10.95% less than for employed workers.
Q9: If not fully used up, can the €500 tax-free amount be carried over to next year?
A: No. On January 1st each year, the €500 is reset for every employee, regardless of how much or how little they were awarded through the scheme in the previous year.
Q10: As an employer, do I need to make a return to Revenue for the Small Benefit Scheme?
A: No. If audited, it is sufficient to show that the total cost of the Small Benefit Scheme is the same or less than the no. of employees at the time multiplied by €500. More detailed records can obviously be kept if desired.
Can't find the answer to your question here? Please email firstname.lastname@example.org and we will be happy to help any questions you have regarding the Small Benefit Scheme.
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.