Small Benefit Scheme
Q. What is the Small Benefit Scheme?
A. The Small Benefit Scheme (SBS) is a statutory tax relief scheme offered by Irish Revenue that allows employers to provide a tax exempt benefit to Irish employees of up to €500 per year.
The Scheme allows you to give certain rewards to your employees that are NOT subject to Benefit-In-Kind (BIK) tax for the employee, or employer tax (Employer PRSI) for the company.
Q. What are the main rules of the Small Benefit Scheme?
A. There are 4 main rules:
1. Once per Year
The benefit can only be given once per year in a single award. As the tax year in Ireland is January 1st – December 31st, this means that if an employer makes an award to an employee in January, then the full year’s €500 BIK-relief is used up for that employee, even if the reward is less than the €500 threshold.
The benefit must be in non-cash form that cannot be converted into cash. This means that it cannot be paid through payroll, or for example on any company expense credit card that could be used at an ATM to withdraw cash.
3. Below the €500 Threshold
The benefit cannot exceed the threshold, which is currently €500 per employee per year. The employer can award a lower amount than €500, or different amounts to different employees, but no employee can receive more than €500 in value.
4. No Salary Sacrifice
The benefit cannot be funded from a deduction in salary from the employee, so the company needs to be invoiced for the total benefit amount, and needs to pay for the total value of the rewards from the company’s own funds.
Q. How much do Irish companies award on average through the Scheme?
A. While many companies do award the maximum of €500 per employee under the Scheme, the average spend per employee is actually just over €300 (€308 to be precise!).
Q. Can we use the Small Benefit Scheme to pay bonuses?
A. Yes up to the €500 threshold as long as the bonus is not guaranteed and seen as part of the employee’s normal salary. Many employers use the scheme to pay the first €500 of any yearly bonus tax-free.
Q. Is there any way to get the benefit of the Scheme year round?
A. Yes! You can extend the scheme throughout the year in conjunction with a qualifying points system, such as the Allgo Points. With this Revenue-approved tool, you can award points to your employees throughout the year, and allow them to cash-in their points at the end of the year up to maximum of €500 in non-cash rewards.
Q. What are the best reward options for Small Benefit Scheme?
A. The most popular rewards on the Scheme are multi-retailer gift cards (like One4All, Me2You and AllGifts Vouchers), Supermarket gift cards (like Dunnes or Tesco), or open-loop Mastercard gift cards (like the Allgo Rewards Mastercard that can be spent in any shop or business that accepts Mastercard – even online and abroad). Employees naturally favour the open-loop cards, which offer the maximum redemption choice, though some companies opt for supermarket cards because of the volume discounts they offer.
Q. What happens if I want to give employee rewards twice a year?
A. Only the 1st reward will qualify for the Small Benefit Scheme.
For example, you award a voucher of €250 in January to an employee, and then another €250 to the same employee in July. The 1st €250 voucher is tax-free, however full BIK and employer PRSI must be paid on the 2nd voucher. Normally, the employer would pay the BIK on this by grossing up the €250 benefit in the employee’s payslip in July, and thereby paying the relevant withholding taxes for the employee’s €250 voucher.
Q. What happens if I want to give an employee a single reward that is over €500?
A. The entire reward is subject to BIK – eg you award an employee a gift voucher worth €575 in December. It is the first award/gift the employee has received that year. Because the benefit exceeds €500 in value, the full value of that benefit is subject to PAYE, PRSI and the USC.
In the case, the best solution is to award €500 in tax-free gift vouchers to the employee and process an additional bonus payment of €75 in the employee’s payroll in December. The company can decide whether the employee should pay the tax on the €75 or whether to gross-up the payment and pay the tax on it for the employee.
Q. Do part-time employees qualify for the full €500 relief on the Small Benefit Scheme?
A. Yes they do. No distinction is made by Revenue between full and part-time employees. As long as the person is an employee of the company, they can avail of the full €500 threshold regardless of the number of hours they work.
Q. Can company directors and proprietary directors avail of the Small Benefit Scheme?
A. Yes, as long as they are paying income tax, PRSI and USC. As proprietary directors are classified as self-employed, and there is no employer PRSI for self-employed workers, the overall tax-saving may be 11.05% less than for non-proprietary company directors.
Q. Do contractors qualify for the Small Benefit Scheme?
A. Yes. How they qualify just depends on how they get paid. If an external contractor is paid through your company’s payroll, then they can avail of the Scheme through you. If they or their company invoice for their services, they can avail of the scheme by awarding themselves as a self-employed worker or through their own company. They cannot qualify both ways!
Q. Can we use the scheme to benefit foreign-based employees?
A. No, not unless they are being paid through the Irish payroll, and are subject to Irish tax.
Q. Can self-employed workers avail of the Small Benefit Scheme?
A. Yes, as long as they are paying income tax, PRSI and USC. As there is no employer PRSI for self-employed workers, the overall tax-saving may be 11.05% less than for employed workers.
Q. Can sole traders of the Small Benefit Scheme?
A. Yes, as long as they are employees paying income tax, PRSI and USC.
Q. If not fully used up, can the €500 tax-free amount be carried over to next year?
A. No. On January 1st each year, the €500 is reset for every employee, regardless of how much or how little they were awarded through the scheme in the previous year.
Q. Can the Small Benefit Scheme be used for Industrial Relations?
A. Not only can it, but more and more we are seeing labour agreements incorporating a mandatory tax-free payment to workers through the Scheme.
Q. If the company offers employees a discount on our own goods and services, can we still use the Small Benefit Scheme?
A. Yes, as long as in relation to the discounted goods or services-
1. the amount paid by the employee is equal to or more than the cost to the company, and
2. the discounted goods cannot easily be changed into money.
Q. If the company gives a Long Service award, can the employee still avail of the Small Benefit Scheme?
A. Yes, as long as-
1. the long service award is made to mark long service of not less than 20 years.
2. the long award is a tangible item (that is, not vouchers, bonds or cash).
3. the cost is not more than €50 for each year of service.
4. no similar long service award has been made to the employee within the previous five years.
Q. As an employer, do I need to make a return to Revenue for the Small Benefit Scheme?
A. No. If audited, it is sufficient to show than the total cost of the Small Benefit Scheme is the same or less than the no. of employees at the time divided by €500. More detailed records can obviously be kept if desired.
Q. As an employee, do I need to make a return to Revenue for the Small Benefit Scheme?
A. No, nothing needs to be returned to Revenue.
Q. If an employment contract includes quarterly bonuses if KPIs are met, can the first bonus be paid via a tax free reward?
A. The key here is understanding if the KPI bonus is part of your contractual remuneration (ie specified in your employment contract), or if it is discretionary (ie up to the company to decide if and how much to pay). Discretionary bonuses qualify for the Small Benefit Scheme, contractual remuneration does not.
Q. If you have 2 sources of income from 2 separate companies – can you receive 2 tax-free vouchers?
A. Yes. as long as you have two employment contracts from two separate employers.
Q. How much do Irish companies typically award on average through the Scheme?
A. While many companies do award the maximum of €500 per employee under the Scheme, the average spend per employee is actually just over €300 (€302 to be precise!).