Employers need to be aware that ALL gifts to employees are within the scope of the Small Benefits Exemption
What is the Small Benefit Exemption?
Since 01 January 2022, employers can give directors (who are on payroll) and employees up to two small benefits, tax free, each year. These benefits must not be in cash and the combined value of the two benefits cannot exceed €1,000.
If more than two benefits are given in a year, only the first two may qualify for tax free status. Unused allowance amounts cannot be carried over.
Tax-free vouchers or benefits can be used only to purchase goods or services. They cannot be redeemed for cash.
A single benefit of up to €1,000 may be provided to an employee tax free. If a single benefit exceeds €1,000 in value, the full value of that benefit is subject to tax. Where two benefits are provided, the combined value of those benefits cannot exceed €1,000.
What’s that got to do with Easter eggs?
If an employer gives a gift of an Easter egg worth, say, €20 to an employee this week, that will count as one of the two benefits allowed to that employee this year.
That means the employer is limited to providing one further tax-free small benefit in the year. For example, if the employee receives a wedding or birthday gift (even flowers) from the business later in the year, he or she would not be eligible to receive a tax-free voucher at Christmas.
Is this a new restriction?
No. It’s been there since the Small Benefit Exemption was first introduced in 2004.
It’s come into focus now because the Enhanced Reporting Requirements (ERR), which came into effect in January this year, oblige employees to report all small benefits granted to employees on or before the date they were provided.
What should an employer do?
If gifts provided under the Small Business Exemption Scheme are something you provide regularly, or you’re thinking about it for 2024 and beyond, then it is worthwhile developing a plan on how this will work.
You don’t want to sacrifice a potential tax-free €500 later in the year for the sake of a relatively small gift now – e.g. that Easter egg!
For example, if you normally provide a voucher at Christmas to the value of €500, and nothing further under the scheme as a matter of course, then you still have the capacity to grant one further award to staff and directors. But if you provide that Easter egg as a gift, then that opportunity disappears.
Further Information
If you have any questions on how the scheme works or what your business needs to do under ERR, then contact DHKN at info@dhkn.ie or email me directly and I’ll connect you to the right person – dhickey@dhkn.ie.
