€1,000 Tax-Free Voucher For Employees Ireland – Employers in Ireland have the opportunity to offer non-cash benefits or vouchers to their employees tax-free under the Small Benefit Exemption Scheme. Under this scheme, employers reward their employees with vouchers or gifts without incurring extra tax liabilities. The Small Benefit Exemption Scheme allows employers to provide non-cash benefits to a maximum value of €500 per employee per year, completely free from the Universal Social Charge (USC), income tax, and Employee Pay Related Social Insurance (PRSI).
The exemption applies to the benefits that meet certain criteria and are also provided in accordance with the rules set out by Ireland’s tax authority revenue. In this comprehensive guide, we will help you explore all the pertaining details of the scheme, including the eligibility criteria, the reporting requirements, the permissible benefits, and the practical considerations for employers.
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Key Takeaways
- Eligibility for tax-free vouchers requires the benefit to be non-cash and the recipient to be on the payroll.
- The maximum value of tax-free benefits per employee per year is €1000, which can be split into two vouchers.
- Employers must purchase the vouchers from business funds and keep records of the transactions.
- Benefits should not be part of a salary sacrifice arrangement and must be reported in the annual P35 return.
- Popular tax-free benefits include gift vouchers, gift cards, and tangible gifts like home ware and jewelry.
What Are Tax-Free Gift Vouchers For Employees In Ireland?
Under the Irish Revenue’s Small Business Exemption Scheme, employees and directors can get a non-cash bonus up to €1,000 once a year. This is an amazing opportunity for the companies that offer tax-free bonuses in Ireland without the need to incur additional taxes. One of the most common and simple ways to do this is through gift cards or vouchers, making it a tax-efficient reward for your employees or staff during the year or as a means of a special bonus during Christmas.
As long as you follow the specific rules and guidelines, employees who will pay (PRSI), PAYE, or USI, and this will enable the company to save up to €1200 in tax per staff employee. If you have not taken advantage of the Small Benefit Exemption Scheme, it is important to do so prior to 31st December. It is important to remember that tax-free vouchers in Ireland can be claimed only once a year and cannot be carried forward.
When To Give Tax-Free Vouchers For Employees In Ireland?
Companies in Ireland offer vouchers to staff as bonuses that are tax-free. It is popular with directors or owners of small businesses with their spouses working in small establishments, as they can benefit from €1000 in tax-free vouchers. It is important to note that spouses and directors should be on the payroll to avail of this scheme.
There is no paperwork included, and you do not need to find any separate tax returns to obtain the scheme. Business owners must record the invoice for the total value of tax-free gift cards for the employees ordered. The invoice is being treated as a fully deductible business expense for business purposes. There’s also no need to adjust the payroll, provided the same rules are followed.
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What Is The Small Benefit Exemption Scheme?
The first scheme introduced in the 2004 Budget in Ireland is the Small Benefit Exemption Scheme. The exemption is in respect of rewards or non-cash gifts given by their employers to their staff or employees and was brought into the legislation in the 2016 Finance Bill. The amount doubled from €250 to €500. With the passage of time, there were changes introduced to the scheme as a part of budget 2023, such as the following:
- The tax-free vouchers or rewards are now €1000 for every employee per year, up from €500.
- Employees can give their staff up to two tax-free rewards in a year instead of one up to the threshold of €1000.
The Small Benefit Exemption is a simple yet incredible scheme that enables employers to reward their staff or employees in a tax-efficient way. Following is the summary of the guidelines under this scheme.
Important Small Business Exemption Scheme Rules To Follow
- Should Be Purchased From Business Funds: It is important to note that a tax voucher should be purchased from a business, a business bank account or credit card. It is significant to note that employees can’t purchase vouchers themselves and seek reimbursement from the company.
- Twice Per Year: Another rule is that only two tax-free vouchers can be paid to an employee here even if you do not avail the maximum allowance of €1000. If you have more than two bonuses each year, only two will qualify for the tax-free status. The amount of the benefits should not exceed €1000, and even if they do, the full amount will be subject to tax.
- Non-Cash Format: Gift vouchers can’t be converted into cash to qualify for the Small Business Exemption. The benefit must not be in cash. Vouchers and gift cards are popular ways to avail of this scheme. These include tangible gift items like water, home goods, and jewelry.
- Recipients Must Be On Payroll: Directors who are availing of the scheme should be on the company’s payroll in order to qualify.
- Salary Sacrifice Is Not Allowed: You can’t fund the voucher scheme by deducting the salary for employees. The amount of benefits can’t be salary sacrificed, which means you cannot offset the amount against the pay of your employees instead of the voucher or gift that must be paid for outside of payroll.
The employer must purchase the voucher, and an employee can’t purchase it, and there must not be any full salary sacrifice arrangement between the employer and the employee.
Benefits Covered Under This Scheme
Under the Small Benefit Exemption Scheme, employees can get the following non-cash benefits.
- Gift Vouchers: These are the vouchers that can be exchanged for goods or services from service providers or specified retailers..
- Gift Cards: Much like gift vouchers, gift cards are preloaded with monetary value and used at online platforms or designated stores.
A few examples of benefits that can be provided under this scheme include Christmas gift cards or gift vouchers that are distributed to employees as a part of the holiday bonus. It also includes gifts provided to mark significant personal milestones like weddings or birthdays. On the other hand, tokens of appreciation can also be given to employees for their outstanding performance or for rewarding their long service in the company.
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How To Avail Tax-Free Vouchers For Employees In Ireland?
Employers can use tax-free vouchers at any time as long as they are used once a year per employee. Following are the ways to avail of tax-free vouchers.
- Choose A Voucher: The voucher can be up to €1000, and the scheme can be divided between two vouchers. For example, you can buy 2 vouchers for €500 each every year.
- Purchase The Voucher: Once you have made the purchase, you need to ensure that you keep the invoice. You can use online bookkeeping software in order to make sure you are organized in your purchase.
- Tax Deductible Expense: You can treat the invoice as a tax-deductible expense. Your accountant will look for the records while doing your tax return, and you can get in touch if you have any questions or doubts.
What Gifts Are Considered Tax Deductible in Ireland?
- Universal Gift Cards: Companies such as Algo, Perx, Allgo, and One4All provide vouchers that can be used in a variety of stores in Ireland.
- Store Vouchers: You can choose your employees favorite shop, department store or supermarket as well. Vouchers for grocery stores and department stores are quite popular to reward employees in Ireland.
- Experience Vouchers: This includes spa treatments, concert tickets, or gym membership.
- Tangible Gifts: This includes tangible gift items like jewelry, electrical goods and homeware.
One of the most important things to remember is that the benefits should not be paid in cash. Gift vouchers and store gift cards are the most popular ways that employers in Ireland reward their employees. Employers are free to implement the scheme as they want, provided they follow the guidelines.
One4All is one of the most popular companies that promotes the Small Benefit Exemption scheme that has thousands of national and online participating outlets and an Allgo reward card that offers an employee incentive point system for companies. Another alternative is to provide tangible gifts as a means to reward your employees. Employees must not exceed the maximum amount allowable under the scheme.
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How Employees Can Benefit From the Small Business Exemption Scheme?
Both full-time and part-time employees on your company payroll, who pay PAYE income tax, USC and PRSI may benefit from the Small Business Exemption Scheme. The amount of savings that you make in taxes will depend on the tax rate you are on and what level of PRSI and USC you are paying. Employees receive the full value of the bonus that they can use as they wish.
How Much Can Employers Save By Using the Small Benefit Exemption Scheme?
As an employer, you can make considerable savings by using the Small Benefit Exemption Scheme to reward your employees.
As per the gift voucher company One4All, if you put a bonus of €1000 through payroll for a staff or employee who is in a higher tax band and pays tax and PRSI, then it will cost your company €2313.54. By utilizing the exemption, you can make amazing savings up to €1313.544 staff compared to putting it through the company’s payroll.
In a nutshell, the Small Benefit Exemption Scheme provides advantages to both employees and employers. While employers can reward and motivate their employees without increasing their tax burden and boost their morale and retention, employees, on the other hand, get additional benefits in the form of gifts or vouchers without deductions for USC, income tax, or employee PRSI, and this way they maximize the value of the benefit received.
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Eligibility For Tax-Free Vouchers Under The Small Benefit Exemption Scheme
The Small Benefit Exemption Scheme in Ireland allows employers to offer tax-free vouchers or non-cash benefits to their employees under specific conditions. Following are eligibility criteria for both employees and employers.
Eligibility Criteria for Employees
- Current Employees. You need to be a current employee of your employer’s company offering the benefits under the Small Benefit Exemption Scheme.
- Value Limit. Each employee can get benefits or vouchers up to a maximum value of €1000 per tax year without incurring any income tax from my employee PRSI or USC.
- Non-Cash Nature. Employees must receive benefits in non-cash form, like gift cards or gift vouchers that can be exchanged for goods or services.
Eligibility Criteria for Employers
- Registered Employers: The employer must be registered with their revenue and compliant with all the tax and employment laws in Ireland.
- Value Limit: The total value of the benefits that are provided to each staff member or employee should not exceed €1000 per tax year. In case the value exceeds the amount in the entire benefit, it will be taxable.
- Non-Cash Benefits: The benefits provided should be non-cash in nature and include gift cards, gift vouchers or non-cash items.
- Not Reward For Work or Performance: The benefits must be provided as a small token of appreciation or seasonal gift and must not be linked to employees achievements or work performance.
- Not Part Of Salary Sacrifice: The benefits must not be provided as part of the salary sacrifice arrangement where the employees are given cash salary in exchange for the non-cash benefits.
- Compliance: Employers have to comply with the reporting requirements set by the Revenue, and this includes reporting the benefits provided under this scheme on their annual P35 return.
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What Are The Document Requirements For Tax-Free Vouchers For Employees In Ireland?
While offering tax-free vouchers to staff or employees in Ireland as per the Small Benefit Exemption Scheme, it is critical for the employers to maintain proper documentation and make sure compliance with the revenue guidance. Following are the documents that you must consider.
Documentation for Compliance
Employers must maintain a detailed record of the benefits that are provided to every employee under the Small Benefit Exemption Scheme, and this includes:
- The name of the employees who received the benefits
- Date when the benefits were received
- Description of the non-cash benefits provided, like gift vouchers or gift cards
- Value of every benefit provided to the employees.
- Evidence with the benefits provided by non-cash, like processor cards to employees, indicating the non-cash nature and the specific terms of use.
Reporting and Tax Documentation
- P-35 Return: Employees must report the benefits provided under the Small Benefit Exemption Scheme on their annual P35 return to the revenue.
- Payroll Records: Employers have to provide accurate payroll records that reflect adjustments made for the benefits provided under this scheme.
- Tax Year Records: Employers have to keep records of the benefits provided to individuals every tax year.
Employee Acknowledgement and Consent
Depending on the internal policy of the company, employers may have employees sign an acknowledgment form that confirms receipt of non-cash benefits under the Small Benefit Exemptions. This will help to avoid misunderstandings and make sure employees are aware of the tax implications of the benefits that they are receiving.
Compliance and Audit Preparation
Employers have to keep a copy of the current Revenue guidelines as well as the rules associated with the Small Benefit Exemption Scheme. This will make sure that they are following the regulations issued by revenue.
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How Employers Can Start Using The Small Benefit Exemption Scheme?
Employers who want to provide tax-free vouchers to their employees can use the scheme in a very straight and simple way. Earlier, there was no need to file any returns or make adjustments to payroll. From January 2024 on, the scheme has fallen under the revenues New Enhanced Reporting Requirements, which means you have to report eligible non-taxable benefits to Revenue in real time.
Employers have to purchase the voucher and provide the benefit to their employee without subjecting it to tax via the normal employer payroll system. This benefit is entered as a non-taxable benefit on the system. When the company is audited, its account will show that the total amount invoiced using exemption does not exceed the number of employees multiplied by €1000.
Conclusion
Tax-free vouchers for employees in Ireland are available through the Small Benefit Exemption Scheme and are an amazing way to show appreciation for your employees. You can give gifts or vouchers to your staff at the end of the year or as a Christmas gift. It is important to note that the benefit must not be paid in cash, as cash benefits are fully taxable. Also, only two tax-free benefits must be given every year up to €1000. If the voucher or gift exceeds the value of €1000, the full value will be subjected to PAYE, PRSI, and USC. Benefits must not be a part of the salary sacrifice arrangement, and the employer should purchase the voucher, which means the employee should not purchase it with the intention of being reimbursed. The small benefit provides considerable savings for both employers and employees in Ireland.
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Frequently Asked Questions
What Is the Small Benefit Exemption Scheme?
The Small Benefit Exemption Scheme enables employees in Ireland to offer non-cash benefits or vouchers to employees up to a maximum value of €1000 per employee per year and is free from income tax, employee PRSI, and USC.
What Types Of Benefits Can Qualify Under The Small Benefit Exemption Scheme?
Non-cash benefits such as vouchers, non-cash items, or gift cards qualify under the Small Benefit Exemption Scheme. Cash or cash equivalent benefits like cash vouchers or checks are not eligible under this scheme.
Are There Reporting Requirements For Gifts Provided Under This Scheme?
Yes, employers have to report benefits provided under the Small Benefit Exemption Scheme on their annual P35 return to the Revenue. This comprises the number of employees who are receiving the benefits and the total value of the benefits provided.
What Are The Specific Rules About The Timing Of Providing Tax-Free Vouchers To Employees Under The Scheme?
Tax-free vouchers for employees in Ireland provided within the tax year for which they are intended to qualify for the exemption. For instance, the vouchers are benefits intended for the Christmas season and must be provided as well as reported in the same tax year.