Are employee reward schemes taxable?

It’s a question you might be asking yourself as the financial year-end (March 31st) quickly approaches.

Well, the answer is:?yes?and?no, depending on the value of the reward.

Many employee reward schemes – that’s programmes created to recognise and reward staff for their performance, achievements and contributions –?are?generally taxable. This is because any rewards or benefits given to employees – whether that’s in cash or some other form – are typically subject to?income tax?and?national insurance?contributions.

However, the good thing is there are?some exceptions?and specific rules depending on the type of reward or benefit you provide. So if you want to show appreciation to your employees with a reward that?isn’t?subject to tax, take a look at the suggestions below.

Types of employee reward schemes and benefits that are non-taxable

In the UK, there are certain employee reward schemes and benefits that are not taxable. These are:

Long-service awards

We’ve gone into lots of detail about?long-service awards?before. But simply put, these are rewards given to employees who have been with a company for a certain number of years.

Again, the good news for UK employers is that these awards are exempt from income tax and national insurance contributions (up to a certain value). To qualify as a long-service award, the following conditions must be met:

1. The employee must have worked for the employer for?at least?20 years
2. The award must be?non-cash, e.g. neither cash nor a cash voucher
3. The award must?not exceed?￡50 for each year of service.

For example, an employee who has worked for a company for 25 years could receive a long-service award worth up to ￡1,250 (￡50 x 25). Long-service awards can be given in the form of a tangible item, e.g. a watch or a voucher for an item or experience – as long as the value of the award does not exceed the ￡50 per year of service limit.

Just remember: any amount over the limit will be subject to income tax and national insurance contributions.

Suggestion scheme awards

Suggestion scheme awards are non-cash rewards that are given to employees who make suggestions that improve their employer’s business or profitability. And in the UK, these awards are also exempt from income tax and national insurance contributions up to a certain value.

The following conditions must be met in order to qualify:

1. The suggestion?must relate?to the employer’s business or profitability
2. The suggestion?must not?be part of the employee’s normal job duties
3. The award must be?non-cash, e.g. neither cash nor a cash voucher
4. The award?must not?exceed ￡25.

For example, if an employee suggests a way to reduce the company’s energy costs and the suggestion is implemented, the employee could receive a suggestion scheme award of up to ￡25.

What’s more, employers may choose to set up a?formal suggestion scheme. This is a great way to encourage employees to make suggestions, before rewarding them for their ideas. Suggestion scheme awards can be given in the form of a tangible item, such as a?gift card, or a non-tangible reward, e.g. extra time off work.

Again, it’s important to note that suggestion scheme awards are?only?tax-free up to the specified limit; any amount over the limit will be subject to income tax and national insurance contributions.

So, is there anything else you can offer employees that?isn’t?liable to tax or national insurance?

Trivial benefits

Trivial benefits are small gifts that employers give to their employees as a token of appreciation or goodwill. In the UK, trivial benefits are tax-free, which means they are not subject to income tax or national insurance contributions. However, the following conditions must be met for a benefit to be considered trivial:

1. The benefit must cost?￡50 or less?per employee (including any VAT)
2. The benefit must?not be cash?or a cash voucher
3. The benefit?must not be given?as part of an employee’s?contractual or salary agreement?(this includes regularity which can be seen as an assumed perk)
4. The difference between trivial benefits and the suggestions above (long service awards and suggestion schemes) is that these must?not be given as a reward for work?or performance. Instead, these are everyday perks, e.g. cakes in the office or Friday drinks, that are good for boosting morale

Examples of trivial benefits include a box of chocolates, a bottle of wine, a meal out or a small gift voucher. We’ve gone into more detail about?using gift cards as trivial benefits?and the type of rewards you can offer here.

The good thing is: employers can give their employees?multiple?trivial benefits throughout the year; there is no official limit to the number they can give (just as long as each benefit meets the above criteria and the employee is not related to an officer of the employer). However, most advice caps this at ￡300 (which trivial benefits are unlikely to exceed anyway). You can find more guidance around?income tax and trivial benefits?here. Essentially, though, trivial benefits are a useful way for employers to show their appreciation to their employees – without incurring extra tax costs.

Cycle to Work scheme

If you haven’t done so already, it’s worth considering a?cycle-to-work?scheme. Through Blackhawk Network platform, we offer ,the leading cycle to work scheme,?Cyclescheme, which allows employees to save up to 39% on a new bike, e-bike or cycling accessories. Importantly, it does so while allowing them to spread the cost of their purchases – interest-free and without paying any tax.

This makes the scheme an attractive option for employees hoping to buy a bike; whether that’s to lead a healthier lifestyle or save on travel costs. Importantly, it’s also perfect for employers who are looking to reward their staff by offering a great tax-free benefit.

https://www.blackhawknetworkextras.co.uk/contact-us