A Tax Break for Christmas: Take Advantage of The Small Gift Exemption

small-gift-exemption

Don’t forget about a small tax-planning opportunity where an employer can make a non-cash gift to an employee without the gift being taxed in the hands of the employee. Take advantage of this tax break for Christmas with no tax on gift vouchers to employees under the small gift exemption scheme:


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It is important to note that “employee” includes company directors where the directors are on the payroll of their own company.

An employer may make what is known as a “small benefit” to an employee once a year in any form other than money, such as a voucher or a hamper, up to a maximum value of €500. This is why you will sometimes hear of employees getting vouchers from an employer at Christmas as a Christmas bonus – it’s because the employer doesn’t have to apply PAYE or PRSI on the benefit given, and the employee therefore isn’t subsequently taxed on the bonus. 

It is important to note the exemption only applies once a year, meaning that giving one voucher of up to €500 in 2018 will be disregarded for tax purposes. However when giving one voucher in June for €250 and another in December for €250, only the first one in June will be tax free, and the second €250 in December will need to be taxed. Also if the one and only voucher is for €600 then the full €600 will be taxed (not just the excess). So care is advised. 

To put this in context, an equivalent net cash/wage payment of €500 could cost the employer as much as €1,111.

So before the end of the year, if your company can afford it you should try and buy a voucher or other non-cash benefit in return for all your own hard work as a company director during the year. It’s a useful, and under-used, tax-free way of getting a benefit out of your company. Or alternatively buy a voucher to replace some of your salary as it costs the employer a lot less to do so.

The scheme is not available for the self-employed to give a voucher to themselves, but can be used for their employees, either as an additional bonus for the employee, or used to replace some salary which reduces the employee’s tax.

Each way, the employee and the employer wins.

 

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Tuesday, 16 July 2019
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