The Minister for Finance, Paschal Donohoe, has announced historic increases in the Small Benefit Scheme in his budget speech.
Up to now, the Small Benefit Exemption Scheme allowed Irish employers to provide a non-cash tax-exempt benefit to Irish employees of up to €500 once per year.
The exemption threshold is now increased from €500 to €1,000 per employee per year. AND employers can give two tax-free rewards in a year up to the threshold instead of just one.
The increase of €500 in the tax-exempt threshold is the largest increase in the Small Benefit Scheme since it was first introduced in 2004 (when the threshold was just €100!). The one voucher per year rule had been temporarily waived during COVID, but is now a permanent enhancement to scheme.
Both enhancements are valid from the current 2022 tax year.
Allgo Rewards calculates that the new €1,000 threshold could potentially generate a tax break of over €1 billion to Irish companies and employees. The total tax saving will of course depend on how many employers avail of the scheme and the new threshold (currently only 62% of Irish employers actually avail of the Scheme).
Of course, any increase in tax-free rewards will be hugely welcomed by employees in the current cost of living crisis. Allgo Rewards excepts that some clients will increase their spend on Allgo Mastercard Gift Cards this year, but more will look budget for increases next year, and possibly look to introduce two rewards per year from 2023.
But with up to €1,000 per employee per year in potential benefits without the payment of income tax, PRSI (employer or employee) and USC, the scope for potential tax savings for Ireland's 2.5m workers and their employers is clear huge.
And with €1,000 in tax-free rewards to play with, the trend towards using points-based systems to run year round employee recognition programmes that are tax-free (such as Allgo's Recognition Platform) is also set to accelerate.