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.
€500 per employee is not an insignificant amount, so instead of simply giving it as an additional thank-you at the end of the year, many companies are now looking to use the Small Benefit Scheme to make their annual bonus more tax-efficient.
While this is undoubtedly a financially smart thing to do, there are some points to bear in mind to ensure that your bonus payments comply with the Scheme-
1. Annual Bonus
The 1st thing to ensure is that the bonus is an annual one, or if it is not, that only the FIRST BONUS paid in a year is included in the scheme. This is because the Small Benefit Scheme only allows one reward per year to be given tax-free, and if more than one reward is given, the tax break only applies to the first one given in any tax year (Jan-Dec).
2. Salary Sacrifice / Guaranteed Bonuses
Irish Revenue take the view that salary sacrifice (ie reducing a salary payment in one month and replacing it with a tax-free benefit) contravenes the Small Benefit Scheme rules.
So only bonuses that are not part of normal salary can be included in the scheme. If a bonus is guaranteed, it will form part of an employees "normal salary" and therefore not qualify for the BIK relief.
3. €500+ Bonuses
If an employee's bonus is less than €500, it can be paid entirely tax-free. However, if the bonus is greater than €500, then only €500 may be paid tax-free, with the remainder being paid through payroll, subject to the usual tax and social welfare deductions.
4. Non-Cash Format
While the rewards offered to employees on the scheme cannot be cash (or convertible to cash), it is important that the rewards you use for tax-efficient bonuses are as close to cash as possible - ie offer the maximum redemption choice for employees. Otherwise, you run the risk of pushback from employees, with the bonus being viewed negatively instead of as motivating factor for staff.
Many companies give employees the option of opting out, and simply getting their full bonus paid via payroll without any tax savings.
Giving staff an opt-out prevents any contractual issues, and in some cases employees may wish to see the higher gross amount appear on their payslips. In our experience, however, 99.9% of employees elect to save the tax.
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.