How to Use the Small Benefit Exemption Scheme for Your Business?
The Small Benefit Exemption Scheme in Ireland allows employers to give employees tax-free gifts up to €1,500 per year, helping boost morale without incurring tax liabilities.
When employees feel appreciated, they are willing to go above and beyond. Appreciating employees motivates them to work harder, increases loyalty to the business, and significantly improves retention rates. Surveys show that 71% of employees say they are less likely to leave their organisation if they were recognised more frequently.
A huge part of employee appreciation involves giving gifts. However, distributing gifts to numerous employees can quickly add up to your cost and tax implications. Fortunately for businesses in Ireland, employees have the choice to avail of tax-free gifting under the Small Benefit Exemption Scheme.
Ireland's Small Benefit Exemption Scheme provides a valuable opportunity for employers to reward their workforce through tax-free gifts and benefits. It ensures that employee recognition is both meaningful and cost-effective. Let's understand how the Small Benefit Exemption Scheme works.
What Is The Small Benefit Exemption Scheme In Ireland?
The Small Benefit Exemption Scheme is a government-approved initiative that allows businesses in Ireland to reward their employees without triggering any additional tax liabilities. Under this scheme, employers can provide employees with small benefits that are tax-free, making it easier to recognise staff.
Under this scheme, employers can give employees up to five small benefits worth €1,500, tax-free each year. Alternatively, employers can give a single benefit, provided the combined value does not exceed €1,500.
The scheme is designed to be straightforward and accessible, enabling businesses of all sizes to participate in tax-efficient employee recognition. The flexibility of giving employees tax-free gifts helps boost employee morale without any tax burden.
What Is The Current Limit For Tax-free Gifting In Ireland?
As of 1 January 2025, the small benefit exemption limit has been increased to €1,500 per employee per year. This represents a significant improvement compared to 2022, when the limit was just €1,000, highlighting governments' increasing focus on the growing importance of employee welfare. The scheme offers two approaches to gifting:
Multiple Benefits: Employers can provide up to five small benefits throughout the year; the combined value of all the benefits should not exceed €1,500. If more than five benefits are given, only the first five benefits are tax-free.
Single Benefit: Employers can choose to give a single benefit of €1,500 tax-free. However, if a single benefit exceeds €1,500 in value, the full value of the benefit becomes taxable.
Note: Any unused tax-free allowance cannot be carried over to the following year.
What Qualifies As A Small Benefit As Per Revenue?
Revenue has established certain criteria for what constitutes a qualifying small benefit under the exemptions scheme.
A 'benefit' means a tangible asset other than cash. Employers can offer employees a voucher or a benefit tax-free, provided the following conditions are met:
1. The benefit is not part of a salary sacrifice agreement, which means that the employee has not agreed to forgo a part of his or her remuneration in exchange for the incentive.
2. The voucher can only be used to purchase goods or services and cannot be exchanged for cash.
Eligible benefits employers can gift to employees under the Small Benefit Exemption Scheme are:
- Flexible gift cards
- Gift hampers or gift baskets
- Gift vouchers to specific retailers
- Seasonal gifts on Christmas, Birthdays
- Tangible gifts like Jewellery, watches, bags, etc
- Health benefits or wellness vouchers
- Technology items like smartphones
Here are some items that do not qualify under tax-free gifting:
- Direct cash payments
- Contractual benefits
- Vouchers or cards that can be exchanged for cash
How Does The Small Benefit Exemption Scheme Work?
The tax-free allowance scheme in Ireland works on a threshold basis. The benefits must be provided by the employer to its employees, and certain conditions must be met:
1. The €1,500 allowance resets on 1st January every year. Which means fresh opportunities for employee recognition.
2. All qualifying benefits during the year count towards the tax-free limit; this means businesses should keep proper records to ensure compliance.
3. Employers must follow the small benefit exemption rules, including maintaining proper records and ensuring gifts are non-cash to comply with Revenue guidelines.
How Much Can Employers Save By Using The Small Benefit Scheme?
Employers are liable to pay taxes on any benefit provided that does not fall under the small benefit exemption scheme. For the employee, the gift is treated as taxable income and is subject to:
- PAYE income tax: 20-40%
- Universal social charge: Up to 8%
- Employee PRSI: 4%
As a result, gifts not covered under the scheme end up costing both employers and employees significantly more. For example, a €1,500 cash bonus could end up costing the employer €3,453.12 after taxes. With the tax allowance, however, the employer pays just €1,500 with no additional tax, making it a tax-efficient way to reward employees.
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