Tax-free Vouchers – A Double Bonus For Everyone

Who can receive tax-free vouchers?

Under Irish Revenue’s Small Business Exemption Scheme, directors and employees can receive a non-cash bonus of up to €1,000 a year in the form of tax-free vouchers. It’s a tax-efficient way to reward your staff during the year or give a bonus at Christmas.

You are required to follow certain guidelines are followed, neither your company nor your employees will pay PAYE, PRSI, or USC on these vouchers. This can lead to a potential saving of over €1,200 in tax per employee. If you haven’t taken advantage of the Small Benefit Exemption Scheme so far, make sure you do so before 31st December. Tax-free vouchers can only be claimed once a year and can’t be carried forward!

 

In this guide, you’ll learn:

• The background to tax-free vouchers
• The Small Business Exemption Scheme rules
• How much tax can I save?
• Tax-free voucher options

 

What are tax-free vouchers?

Tax-free vouchers are popular amongst companies who want to reward their employees with Christmas bonuses.

It’s also popular with owners/directors of small businesses who have their spouse work in the same establishment, as they could benefit from up to €1,000 in tax-free vouchers. Note that for directors and spouses to avail of this scheme, they must be on the payroll.

No paperwork is involved and no return has 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.

Small business exemption scheme rules

 

• You must purchase from business funds

Tax-free vouchers must be purchased using the business bank account or credit card. It is important to note – employees cannot purchase a voucher themselves and seek reimbursement from the company.

• Twice per year

Only two vouchers can be paid to an individual in any one year, even if you do not avail of the maximum annual allowance of €1,000. If more than two bonuses are given in a year, only two will qualify for the 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 thereafter. 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 need to be invoiced for the rewards and pay this externally to payroll.

• Recipients need to be on the payroll

Directors who avail of this scheme need to be on the company’s payroll to qualify.

 

 

How much tax can I save per €500 voucher?

	Small Business Exemption Rules	Normal payroll in order to receive €500 (i.e. after tax)
Gross payment	€500	€1,042
PAYE	0%	@ 40% = €417
PRSI – employee	0%	@ 4% = €42
USC	0%	@ 8% = €83
Total employee tax	€0	€542
Net payment	€500	€500
PRSI – employer tax	0%	@ 10.75% = €112.015

Total tax saved: €654

 

 

 

How to avail of tax-free vouchers

Employers can use the scheme at any time in the year, as long as the two uses combined do not exceed €1,000.

Purchase the voucher

When you have made the purchase, make sure that you keep the invoice. You should use online bookkeeping software to make sure you are organised.

Tax-deductible expense

 

You then treat the invoice as a tax-deductible expense. Your accountant will look for these records when doing your tax return. Get in touch if you have any questions.

 

 

Tax-free voucher options

 

Universal gift cards

Companies like One4All, Allgo, and Perx offer a voucher that can be used in many different stores in Ireland.

Store vouchers

Choose your employees’ favourite shop, department store, or supermarket.

Experience vouchers

Buy Spa treatments, gym memberships, or concert tickets are all good ideas.

 

Book A Free Consultation

Are you looking for professional help? aperio is a Cork-based outsourced accounting and consulting company that can take care of all your needs. We are experts in company formation, bookkeeping, management accounting and financial compliance. We also specialise in financial project work such as grant applications. Book a FREE Consultation today.