Small Benefit Exemption – Tax-Free Gifts for Employees
Under the Small Benefits Exemption employers may give employees up to two tax-free benefits per tax year totalling €1,000. (This amount was raised from €500 in 2022). The benefits can take the form of gifts or vouchers but must not be paid in cash. The combined value of the two benefits cannot exceed €1,000. This is an excellent opportunity for companies to provide tax free gifts to employees, without incurring additional taxes for the employer or their employees.
The following rules apply to the Small Benefit Exemption Scheme:
- The benefit cannot exceed €1,000. The benefit can take the form of gifts or vouchers, not cash.
- A maximum of two benefits, including gifts or vouchers, can be given to an employee per annum.
- Where a benefit exceeds the threshold, the full value of the benefit is subject to PAYE, USC & PRSI.
- The non-cash benefit cannot be exchanged in part or in full for cash (Cash payments are fully taxable).
- The benefit cannot be part of any ‘salary sacrifice arrangement’ between the employee and employer. This means that the benefit amount cannot be offset against the employee’s pay.
Where all of the above conditions are met the qualifying benefit will not be liable to Benefit-in-Kind (BIK), the benefit will not be subject to PAYE, USC & PRSI.
How much can you give to employees tax free
You don’t have to give the full benefit of €1,000 to avail of the Small Benefit Scheme. You can give employees any amount up to the value of €1,000, as long as you limit the number of benefits to two occasions per year. A single benefit of up to €1,000 may be given to an employee tax-free. If a single benefit exceeds €1,000 in value, the full value of that benefit is subject to tax. Where two separate benefits are given, the combined value of those benefits cannot exceed €1,000.
Enhanced Reporting Requirements (ERR)
At the beginning of 2024, the rules changed concerning the management of benefits employers give to employees that come under the Small Benefit Exemption. Together with travel and subsistence payments, and the remote working daily allowance, Revenue now requires all employers to report who receives these benefits and their value. In addition, the data is to be reported on a real-time basis. With the Enhanced Reporting Requirements, employers are now required to report to Revenue details of those employees who receive a benefit, the value of the benefit, and the date(s) on which benefit was given. Payments by employers under ERR are now required to be reported to Revenue in real time i.e. on or before the date of payment. The data can be reported via payroll software, so long as it has the necessary ERR reporting add-on. Otherwise, data may be uploaded manually through ROS. Employers can also enter data manually via a specific ERR portal.
Tax free gifts for employees
We often hear that vouchers and gift cards are popular ways to avail of the small benefit scheme. However, they are not your only option. Tangible gifts are also tax-efficient, not only with the Small Benefit Exemption scheme, but also with the Long Service Awards Allowance (LSA). The same rules apply to tangible gifts as to vouchers, under the small benefit exemption scheme. Additionally, companies can give employees a tax-free tangible gift to recognise long service, once qualifying conditions are met.
Long Service Swards Allowance
Revenue also offers generous tax relief with the Long Service Awards Allowance, for which separate rules apply. The award is made in respect of a period of service of not less than 20 years of service, and no similar award has been made to the recipient in the previous 5 years. Long Service Awards are tax-free when the awards take the form of tangible gifts (PAYE, PRSI or USC do not need to be applied to the benefit). This concession does not apply to awards made in the form of cash or vouchers. The allowance is €50 for each year of service, starting at 20 years and every 5 years thereafter. The is an excellent opportunity to celebrate loyal employees by presenting them with a gift, or by offering them a choice of tangible items from tech gifts to Irish designed products.
The Small Benefit Exemption Scheme is a great way to show your appreciation for your employees. This scheme, together with the Long Service Awards Allowance, encourages companies to recognise and reward their employees and helps to foster a positive workplace. Contact the team at Gift Innovations for great gift ideas to recognise and rewards your employees.