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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 €500. 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. 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. 
• The amount of the benefit must not exceed €500. If it is more than €500, the full amount is subject to tax. 
• In normal circumstances no more than one benefit per employee per year. Subsequent benefits will be subject to tax, even if the total amount is less than €500. However, Revenue announced that for the tax year 2020, the single gift rule does not apply. Therefore you can make multiple purchases in one year up to the value of €500. This exception is in response to the Covid-19 outbreak to allow staff members working through the crisis to be rewarded. 
• 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 €500 available. Small business owners may be unable to afford to give each employee €500 and prefer to gift a lesser amount. That is fine – any amount up to a maximum of €500 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 €654 in tax per employee. If you have not availed of the Small Benefit Exemption Scheme so far in 2020, make sure you do before 31st December!

Lisa Doherty, BBS QFA RPA is a Qualified Financial Advisor and Retirement Planning Advisor. You can contact her through John F. Loughrey Financial Services by telephone on 074-9124002 or by email on lisad@jfl.ie