Small Benefit Exemption - Give the Gift of Wellbeing in a tax efficient way!

Throughout the year, you may be looking for a way to show your employees your appreciation of their hard work during the year, you may want to reward some staff on the successful completion of a project, celebrate their 10th year anniversary with the company, or any good reason. You know a cash bonus would be welcome but by the time taxes including pay as you earn (PAYE) income tax, universal social charge (USC), and pay related social insurance (PRSI) are deducted, the net sum will be significantly reduced.

However, there’s another way that employers can reward their workers without incurring taxes: by giving them a bonus or gift using the Small Benefit Exemption Scheme. The Good4all Giftcard meets the criteria and so much more. Not only do you reward your employees, but you promote employee wellbeing in a tangible way by helping them access wellness treatments, you support local businesses and you show you care about your employee’s wellbeing.

Tax-free gift vouchers for directors and employees

Under Irish Revenue’s Small Benefit Exemption Scheme, directors and employees can receive a non-cash bonus of up to €1000 once a year. The most common way to avail of this is through vouchers.  It’s a tax-efficient way to reward your staff during the year or give a year end bonus.

small easel with coins lying around

The background to tax-free vouchers

In 2022, we saw the Small Benefit Exemption Scheme threshold double from €500 to €1000. The tax-free vouchers are popular amongst companies who want to reward their employees with an annual bonus, but it is equally suitable to mark anniversary of long term employees, highlight outstanding achievements, celebrate the successful completion of a project, etc..

It’s particularly popular with owners/directors of small businesses who also have their spouse work in the same establishment, as they could benefit from up to €1000 in tax-free vouchers.

There is no paperwork involved and no return to be made to avail of the scheme. Business owners are simply invoiced for the total value of tax-free vouchers ordered. The invoice is treated as a fully deductible business expense for accountancy purposes and there is no need to adjust payroll – provided the rules listed below are followed.

The Small Benefit Exemption Scheme rules

We have outlined the necessary guidelines below to help you qualify for the tax exemption:

  • Must be purchased from business funds. Tax-free vouchers must be purchased from the business bank account or credit card. It is important to note – directors or employees cannot purchase a voucher themselves and seek reimbursement from the company.
  • Twice per year. The scheme can only be availed of twice in a year. Only two tax-free vouchers can be paid to an individual in any one year, even if you do not avail of the maximum annual allowance of €1000. If more than two bonus vouchers are given in a year, it is only the first two that will qualify for tax-free status.
  • Non-cash format. The benefit must be provided in a non-cash format e.g. gift voucher, which cannot be converted into cash. As the payment must be in a non-cash form, the most common way to avail of this scheme is by purchasing gift vouchers.
  • A salary sacrifice is not allowed. You cannot fund the scheme from a deduction from your employee’s salary. You must get invoiced for the rewards and pay this external to payroll.
  • If a benefit exceeds €1000 in value, the full value of that benefit is subject to tax.