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.
From a Financial Controller's perspective, the Small Benefit Scheme represents one of the most efficient tax-breaks available to employers and employees in Ireland AND probably the single most popular means to recognise and thank staff every year.
Here are our Top 3 Things that Financial Controllers should definitely know about using this tax-free reward 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.
In practice, most companies elect to use gift vouchers or gift cards for the scheme for 2 reasons:
- Gift cards and vouchers are much easier to distribute to staff than physical goods, and
- They are more popular with staff because of the redemption choice they allow (in fact, employees always want the the reward that is 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 Controllers is that retailers give discounts on their own brand vouchers if bought in bulk. In particular, the main supermarket - eg Dunnes, Supervalu and Tesco - offer discounts as high as 5%-10% on the total value of gift cards bought.
Staff tend to prefer the widest possible choice, and that's why multi-retailer vouchers - like One4All, Me2You, and AllGifts Vouchers - are very popular with staff. The issue for Financial Directors is that multi-retailer gift cards offer limited, if any, discounts on the face value.
Finally, the most popular types of gift cards today are open-loop prepaid Mastercards - like the Allgo Mastercard Gift Card - that can be spent literally anywhere, but which offers absolutely no scope for discounts - even if a company is buying €1,000,000 worth.
2. Salary sacrifice is not allowed, but paying bonuses tax-free is very popular
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 pays 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. See our separate blog post on paying bonuses through the Small Benefit Scheme here.
One last word of warning: if your company bonuses are guaranteed, 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 50 staff, it can order 50 x €500 in rewards (or 50 x a lower amount), 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 payroll 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 (recommended, not obligatory).
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.