Small Business Exemption
When it comes to special occasions, like Christmas, you might be looking for ways to show employees your appreciation for the year just passed. Ideally, a cash bonus would be the best way to reward employees. However, a cash bonus would be exposed to an effective income tax rate of 52% at the higher marginal rate (Income above €36,800). This is where the Small Business Exemption Scheme and the benefit of using tax-free vouchers makes sense.
What is the Small Benefit Exemption?
The Small Benefit Exemption Scheme was first introduced in the 2004 Budget. The exemption scheme amount doubled from €250 to €500 in 2016. However, as part of this year’s 2023 Budget, two significant changes were announced to the scheme which is effective from the 2022 tax year:
- The benefit is now up to €1,000 tax-free for each employee per year, up from €500 in 2019.
- Employers can give their employees up to two tax-free rewards in a year, rather than one, up to the threshold of €1,000.
Other important aspects of the Small Business Exemption are:
- The benefit must be non-cash. Gift cards and vouchers are allowed to purchase goods or services.
- Gift cards must not exceed €1,000. If they do, the full amount is taxable at the marginal rates of income tax
- Gift cards cannot be offered as part of a salary sacrifice scheme whereby the employee forgoes salary in place of receiving gift vouchers.
- Gift cards must be paid for outside of payroll.
- Both part-time and full-time employees can avail of the Small Business Exemption Scheme
- Employees must be on the employer’s payroll at the time of issuing the vouchers. Contractors are therefore not allowable.
How do Employers operate the Small Benefit Exemption Scheme?
The Small Benefit Exemption is very straightforward. Employers offer employees vouchers of up to €1,000 from the 2022 tax year. The employer provides the vouchers outside of the payroll function and includes the purchase invoice for the cost of the vouchers in the business books and records.
What Gift Voucher Schemes can I use?
In reality, any retail vouchers can be used to avail of the Small Benefit Exemption. This means that you could choose to provide gym membership, spa treatment, or concert tickets instead so long as the gift is non-cash. The following voucher schemes are popular and are actively marketed as Small Benefit Exemption products:
One4All gift vouchers are very popular in Ireland and have been around since 2004. They are available online or through the Post Office network. One4all gift vouchers are redeemable at 1,000’s stores nationwide.
Perx is a reward card that looks like a normal debit card and can be redeemed anywhere you see the MasterCard payment symbol. Cards are issued in 1-2 days with a pre-loaded amount of credit to be spent wherever your employee pleases.
Swirl Gift cards can be used as part of the Small Benefit Exemption in Ireland where employees can receive a bonus of up to €1,00 per year. The SWIRL Gift Card is swipe and sign only and does not allow for ATM or cash back access. This means it does not count as cash and can be loaded, tax-free with up to €1,000.
Clevercards provides digital pre-paid Mastercards to corporate clients so they can reward their employees and/or customers up to €1,000 annually as part of the Small Benefit Exemption.