Would You Like €1,000 Tax Free?
15 November 2022
As Christmas approaches, you may wish to show your employees your appreciation of their hard work during the year. Obviously, a cash bonus would be welcome but by the time pay as you earn (PAYE) income tax, universal social charge (USC) and pay related social insurance (PRSI) are deducted, the net sum will be significantly reduced.
Under the Small Business Exemption Scheme, directors and employees are eligible to receive a non-cash bonus of up to €1,000. All employees on your payroll who pay PAYE income tax, PRSI and USC can benefit from the small benefit scheme. How much they save in taxes depends on the tax rate they are on and what level of USC and PRSI they pay. However, the bottom line is that your employee receives the full value of the bonus, which they can use as they wish.
There is no paperwork involved and no return to be made to avail of the scheme. Companies or sole traders are simply invoiced for the total value of tax-free vouchers ordered. The invoice is treated as a fully deductible business expense as long as the following rules are met:
- The vouchers must be paid for from the business bank account. Directors or employees cannot purchase a voucher themselves and seek reimbursement from the company.
- The benefit must not be in cash. Gift cards and vouchers are popular ways to avail of the scheme.
- Since the Covid-19 pandemic, the scheme can now allow two separate payments in a single tax year.
- The total amount of the benefit must not exceed €1,000. If it is more than €1,000, the full amount is subject to tax.
- Unused allowance amounts cannot be carried over.
- The amount cannot be a salary sacrifice. This means you cannot offset the amount against the employee’s pay. The gift or voucher must be paid for outside of payroll.
- You do not have to give the full benefit of €1,000 available. Small business owners may be unable to afford to give each employee €1,000 and prefer to gift a lesser amount. That is fine – any amount up to a maximum of €1,000 is allowable.
Tax-free vouchers are an efficient way to reward your staff during the year or with a bonus this Christmas. Provided the guidelines are followed, neither your company nor your employees will pay PAYE, PRSI or USC, potentially saving up to €653.65 per employee. If you have not availed of the Small Benefit Exemption Scheme so far in 2022, make sure you do before 31st December!
If you are going to avail of the scheme, it is possible to support local jobs and local businesses by purchasing Shop LK vouchers which are accepted in over 220 outlets in Letterkenny. Shop LK vouchers can be purchased online at www.shoplk.ie at Letterkenny Chamber of Commerce, 2nd Floor, Grand Central Complex Monday to Friday 9am to 5pm and at the Courtyard Shopping Centre during normal working hours.
Jacinta Clerkin BSc QFA FLIA RPA is a Qualified Financial Advisor, Fellow of the Life Insurance Association and Retirement Planning Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on firstname.lastname@example.org.