Employers can reward employees under the Small Benefits Exemption Scheme with a non-cash bonus of up to €500 per year completely tax free.
If guidelines are followed neither the employer nor the employee will pay PAYE, PRSI or USC with a potential saving of over €650.
To qualify for the tax exemption, only one tax-free bonus may be paid to each employee in any one year. If more than one bonus is given in a year, it is only the first one that will qualify for tax-free status, even if this bonus is less than the €500 annual allowance – any used allowance cannot be carried over.
If this bonus is greater than the €500 annual allowance it must be taxed in full.
The tax-free bonus cannot be paid in cash and the gift cannot be exchanged for cash, in part or in full. This must be purchased from employer’s funds.
The bonus is treated as a normal business expense for tax purposes and there is no need for any payroll adjustments.
For businesses who provide vouchers, the general rule regarding gift voucher sales is that no supply occurs until the vouchers are presented for encashment and accordingly VAT only becomes due when vouchers are redeemed. Due to an EU Directive, the VAT treatment of vouchers will change from January 1, 2019.