Tax Free Bonus and VAT On Vouchers

Posted in PAYE/PRSI, Tax Saving

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, as it must be purchased by the employer.

The bonus is treated as a normal business expense for tax purposes and there is no need for any payroll adjustments.

For businesses that sold vouchers, the general rule regarding gift voucher sales was that no supply occurs until the vouchers are presented for encashment and accordingly VAT only became due when vouchers were redeemed. Due to an EU Directive, the VAT treatment of vouchers changed from January 1, 2019.  

The new rules differentiate between two types of vouchers — single purpose or multi-purpose vouchers.

A single purpose voucher is defined as “a voucher where the place of supply of the goods or services to which the voucher relates and the VAT due on those goods or services are known at the time of the issue of the voucher”.

A multi-purpose voucher is defined as “a voucher other than a single purpose voucher”. This would include vouchers which can be redeemed against goods and services with different VAT rates and by a variety of suppliers.

When a single purpose voucher is issued VAT is then due and for a multi-purpose voucher VAT is not due until the voucher has been redeemed

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