Benefits in Kind: Small Benefit Exemption
Employers will be familiar with the Small Benefit Exemption (SBE) which is a Revenue concession in respect of non-cash benefits/vouchers provided to employees. Finance Bill 2022 announced the extension of the SBE to allow for up to two vouchers/benefits to be granted by an employer in a year, with an increase in the annual exemption from €500 to €1,000 in aggregate. These changes were applicable from the 2022 year of assessment.
Benefit for Employees:
Employees are not liable for PAYE, USC and PRSI on value of award.
Benefit for Employers:
Employers are not liable for employer PRSI (11.05%) on value of award.
Conditions for SBE to apply:
- The award must be a “qualifying incentive” which is a non-cash incentive and:
- in the case a single benefit is provided, the value does not exceed €1,000.
- where two benefits are provided, the cumulative value of the first and second benefit does not exceed €1,000.
- Where any award exceeds €1,000 in value the full value of that award is subject to PAYE, USC and PRSI.
- If more than two benefits are given in a year, only the first two may qualify for tax free status.
- Tax-free vouchers/benefits can be used only to purchase goods or services. They cannot be redeemed for cash.
- The voucher or benefit must not form part of a salary sacrifice arrangement.
To maximise the tax efficiency of the SBE and avoid subsequent awards being liable to tax, some companies use a ‘recognition and rewards’ system which allows employees to accumulate points over the course of a year. This minimises the tax liability where employees are recognised multiple times in a year.
Please see below some examples to further explain the SBE:
Example 1
Company A awards a voucher of €500 in February and a €500 voucher in December to an employee.
Tax Treatment
The employee can avail of the SBE and as the two vouchers do not exceed the annual exemption of €1,000, both vouchers can be provided to the employee tax free.
Example 2
Company B awards an employee a voucher worth €500 in January, a hamper in July worth €50 and a €500 voucher at Christmas.
Tax Treatment
The first two awards, which total €550 will be covered by the SBE, but the third award will be fully liable to PAYE, USC and PRSI. The value of the third voucher (€500) should be processed through payroll in the month the award is made i.e. the December payroll.
Had Company B awarded the second €500 voucher before the €50 hamper, the employee would have maximised the full benefit of SBE and only €50 would be subject to tax.
Example 3
Company C awards an employee a voucher worth €500 in April and another voucher in December worth €600.
Tax Treatment
Where two vouchers exceed €1,000 in value, the full value of the second voucher is subject to tax. The value of the second voucher (€600) should be processed through the December payroll and the relevant withholding taxes applied.
If you have any queries about the small benefit exemption, please contact Ciara Colbert, Senior Manager in our Tax Services’ Department.
