Tax-free gift vouchers for directors and employees

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Employers can make considerable savings by using the exemption to reward their employees.

If you were to put a bonus of €500 through payroll, the net amount for your employee would be significantly reduced.

By using the exemption, you can ma of up to €653 per employee compared to putting it through payroll.

How employees can benefit from the scheme

Any employee on your company –  part time and full time – who pays PAYE income tax, PRSI and USC can benefit from the small benefit scheme. How much they save in taxes depends on the tax rate they’re on and what level of USC and PRSI they pay.

Your employee receives the full value of the bonus, which they can use as they wish.

How employers can start using the scheme

Using the scheme is straightforward. There is no need to file a return or make adjustments to payroll.

The employer purchases the vouchers and the invoice is treated as a fully deductible expense.

Donnelly explains: “The employer simply provides the voucher/benefit to the employee and does not subject it to tax through the normal employer payroll system. The benefit is entered as a ‘non-taxable benefit’ on the system.”

If the company is audited, its accounts will need to show that the total amount invoiced using the exemption does not exceed the number of employees multiplied by €500.

Employers are free to implement the scheme as they wish, provided they follow the rules.

The exemption applies only to the first payment. If you give your employees vouchers, for example, the first amount will be exempt from taxes, while the remainder will be subject to tax.

If an employer gives two vouchers, for example, €200 during the year and €300 later on, then the second will be subject to tax.

There are specific conditions to qualify for the non-cash or gift card payment which are:

• The benefit cannot be cash, any cash payments or cash benefits are fully taxable.
• The gift card allows employees to receive a bonus or non-cash gift without paying PAYE, PRSI or USC on the amount (not exceeding a one time benefit of €500).
• The gift voucher must be purchased by the employer from the company funds e.g. company bank account or company credit card. The director or employee cannot purchase a voucher themselves and seek reimbursement from the company.
• Only one such benefit can be given to an employee in one tax year, even if you do not take the full €500. For example, you cannot take a voucher of €300 earlier in the year and take a further €200 later in the year.
• If a non-cash benefit exceeds the threshold allowance then the full face value of the benefit is subject to PAYE, USC and PRSI.
• The benefit cannot form part of any salary sacrifice arrangement between the employee and employer.

For more information please contact a member of our expert team on info@mawhately.ie.

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