Kieran Coughlan: Rewarding your employees this Christmas?
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It’s the time of year for giving and gifting, and over recent years, the gifting of vouchers to employees has become a much more widespread occurrence, and the popularity of the tax-free nature of the benefit has been radically improved in recent years also.
Some employers choose particular vouchers, for example, for a hotel, supermarket chain or travel company or airline, whereas other employers use prepaid credit card type products or An Post’s One for All vouchers.
Their card-type vouchers are now governed by Anit-Money-Laundering rules, and where the value of the card is over €150, employees will have to provide ID and documents to the card issuer in order to activate their card.
This limit has been considerably enhanced by increasing the limit to €1,000 and by increasing the total of such benefits to two over the course of the year.
Practically, this means an employer could give one voucher to an employee for €1,000 or two vouchers, which together total €1,000 or less. The legislation which governs this tax-free benefit is generous at both employer and employee levels in that the benefits are exempted from income tax, PRSI and USC in the hands of the employee, but also, the benefit importantly can be considered as a tax-deductible expense for the employer whilst also not triggering any employers PRSI costs.
There are a number of nuances in the legislation, though, which include that the benefit cannot be in lieu of wages or a salary sacrifice, but also, the benefit only applies to the first two benefits received in the year.
This has resulted in silliness where an employer can easily trip themselves up and find to their detriment that the vouchers are taxable and that the employer must cover the cost of the voucher in the first instance but also the deemed PAYE, PRSI, USC and employers PRSI on a notional re-grossed amount.
Say for example an employer gives employees Easter eggs in April to a value of €20, and gives employees €1,000 voucher at Christmas. There are only two benefits to the employee in the year, but as the second benefit, when accumulated with the first benefit exceeds the €1,000 benefit, then the second benefit is totally excluded for qualifying, not just the excess over the €1,000 limit.
Other silly benefits that could be counted are lunches provided by an employer or flowers on Valentine's Day. The key point here is that employers need to be super careful not to end up tripping themselves up.
Thankfully, this silliness will somewhat be obviated from January 1 next year when the legislation changes the total amount of benefits to five in a year subject to an overall limit of €1,500 per year.
It might seem a bit ridiculous, but employers would be well-minded to give their employees their vouchers early in 2025 rather than at Christmas 2025 such that their main benefit for the year is locked in tax-free, or alternatively, employers might wish to consider splitting the benefits to their employees into multiple benefits, say three x €500 rather than one overall benefit of €1,500 in case they have omitted to take account of other small benefits such as the Easter egg example, the risk with one big benefit being that it is disqualified due to some obscurity.
Employers are obliged to notify Revenue in advance of such benefits being given to their employees and most payroll packages will facilitate this, this is a new requirement for year 2024 and for future years.
Whilst there is a bit of hoop-jumping in relation to staying on the right side of the law, the tax benefits are significant and, to my mind, well worth it.
