How To Reward Staff With Tax-Free Gifts In Ireland?

Employers in Ireland can reward employees with tax-free gifts of up to €1,500 under the Small Benefits Exemption Scheme.

When an employer rewards staff in cash, the gesture loses its charm quickly because it is treated as taxable income. A €1,000 bonus, for example, can leave an employee with just €500 after deducting taxes like Income Tax , Universal Social Charge (USC), and Pay Related Social Insurance (PRSI). Additionally, the employer ends up paying more than €1,150 once employer PRSI is factored in.

The good thing is that there is a better option: tax-free gifting using employee benefit cards. Employers can reward staff tax-free in Ireland under the Small Benefit Exemption Scheme. This scheme was introduced by Revenue so employers could reward employees without triggering any additional tax liabilities. In this article, let's look at how this scheme works, how much you can gift tax-free, and the best tax-free gift for employees in Ireland.

How Much Money Can You Gift Tax-Free? Small Benefit Exemption Scheme Explained

The Small Benefit Exemption Scheme is an initiative by Revenue that allows businesses in Ireland to reward employees without incurring any tax on it, provided the rules of the scheme are complied with.

Under this scheme, employers can reward staff with five qualifying incentives in a year, the total value of which must not exceed €1,500. The benefit provided must be non-cash.

Alternatively, employers can also give one qualifying non-cash benefit provided the total value of the benefit does not exceed €1,500. In case the value of the single benefit exceeds €1,500, the full value of the benefit is subject to tax.

What Qualifies As A Small Benefit?

A qualifying incentive under the Small Benefit Exemption Scheme is a non-cash benefit that can be used to purchase goods or services. To qualify as a small benefit, the following conditions should be met:

1. No salary sacrifice: The benefit cannot form part of a salary sacrifice arrangement, where an employee gives up a portion of their salary in exchange for an incentive.

2. Non-cash Benefit: The benefit must be strictly for purchasing goods or services. It cannot be exchanged, in whole or in part, for cash.

Employers should note that the first €1,500 in benefits provided under the Small Benefit Exemption is tax-free, and this amount can be split across up to five separate benefits in a year. However, employers cannot choose which benefits to tax and which to exempt.

For example, they cannot decide to apply tax to smaller gifts in order to save the exemption for a higher-value benefit later on the exemption automatically applies in sequence as benefits are given.

What Can Employers Reward Staff Tax-Free In Ireland?

Here are some tax-free gifts that qualify as a small benefit under the scheme:

1. Gift Cards: Gift cards are pre-loaded cards where the employer funds the card and offers it to the employee. This may be physical or digital. The card can be tied to a specific store or powered by a network like Mastercard so they can be used anywhere.

2. Gift Vouchers: Gift vouchers are paper or digital vouchers. Employers pay a fixed amount for these vouchers, which can then be redeemed at the retail chain it belongs to.

3. Entertainment Vouchers: Entertainment vouchers are more specific experiences. This includes vouchers to restaurants, the cinema, the theatre, etc.

4. Wellness Vouchers: Wellness vouchers cover services like gym membership, spa treatment or other wellness activities.

5. Tangible Gifts: Tangible gifts are non-cash rewards like hampers, jewellery, watches, bags, etc.

Best Tax-Free Gift For Employees In Ireland

When it comes to picking a gift, there is no one-size-fits-all. Some employees may prefer to spend their reward on everyday expenses, some may want to spend it on a wellness activity. That's why the best reward gives the employee the choice to spend anywhere.

Offering employees the flexibility to choose their reward ensures they feel truly appreciated. A gift that offers this level of flexibility is a tax-free gift card, powered by a payment network. For example, a Mastercard gift card is accepted anywhere around the world, offering employees total freedom.

If you are on the lookout for such a gift card for your team, CleverCards offers tax-free gift cards. These cards are digital, prepaid, and Mastercard-powered. Key features of CleverCards' gift cards are:

• They can be issued instantly via email
• These cards are 100% digital, which means no physical delivery is required
• Gift cards can be added to smart wallets like Google Pay & Apple Pay
• They are accepted by 50 million+ merchants worldwide, both online and in-store
• Employees can easily track their card balance in real-time on the CleverCards app

Mistakes To Avoid While Rewarding Employees

While revenue has clearly outlined the rules for a gift to qualify under the Small Benefit Exemption Scheme, employers sometimes make errors that unknowingly create tax complications. Here are some things to avoid while rewarding employees:

1. Exceeding benefit limit: Any reward whose cumulative value exceeds €1,500 in a tax year becomes fully taxable. Employers need to be extremely careful not to breach this limit.

2. Providing more than five benefits: Only the first five benefits qualify under the exemption limit. Any additional benefit becomes fully taxable.

3. Giving a non-qualifying incentive: It is easy to get confused between qualifying and non-qualifying benefits. A simple rule of thumb is to never give something that can be exchanged for cash.

Enhanced Revenue Reporting Requirements

Enhanced Revenue Reporting Requirements (ERR) requires employers to report non-taxable payments and benefits provided to employees.

So, any benefit provided under the Small Benefit Exemption Scheme needs to be reported to Revenue in real-time.

Employers need to submit details of these benefits provided using Revenue Online Services (ROS) on or before the payment date.

How To Plan Rewards To Meet Revenue's Tax Exemption Limit

To make the most of the tax-free gift limit in Ireland, employers must plan rewards carefully. Some ways to approach it are:

1. Offering Quarterly Rewards:

Distribute the total €1,500 reward in four quarters of €375 each. This method keeps employees consistently motivated while keeping the company's costs manageable.

2. Gift On Key Occasions:

The second approach is to align rewards with meaningful moments such as birthdays, work anniversaries, Christmas, or New Year's.

3. Reward On Performance:

Recognise based on performance. This could be done once a year after a performance review and is directly affiliated with boosting morale.

By planning efficiently how rewards are given, employers can maximise the impact of the tax-free gifts while staying compliant.

Want to use CleverCards for tax-free gifting? Fill out the form below for a free demo.