Small Benefit Exemption
The Small Benefit Exemption Scheme enables employers in Ireland to provide non-cash benefits to employees without incurring tax liabilities, serving as a tax-efficient method to reward staff.
Initially introduced in the 2004 Budget, the scheme has undergone several enhancements to increase its benefits.
For the 2024 tax year the Small Benefit Exemption is €1,000
Recent Updates to the Small Benefit Exemption Scheme
As of January 2025, the scheme includes the following key changes:
Increased Exemption Limit: Employers can now offer non-cash benefits up to €1,500 per employee annually, an increase from the previous €1,000 limit.
Additional Tax-Free Benefits: The number of tax-free benefits permitted per year has expanded from two to five, provided the total value does not exceed €1,500.
Compliance Guidelines
To ensure adherence to the scheme’s regulations, employers must consider the following:
Non-Cash Benefits Only: The benefit must not be in cash. Acceptable forms include gift cards, vouchers, or tangible gifts such as electronics or homeware.
Value Threshold: The total value of the benefits must not exceed €1,500 annually; exceeding this amount renders the entire benefit subject to tax.
Benefit Frequency: Employers can provide up to five tax-free benefits per employee per year. Any additional benefits beyond this limit will be taxable.
No Salary Sacrifice: The benefit cannot be part of a salary sacrifice arrangement, meaning it should not replace any part of the employee’s regular pay.
Separate from Payroll: The benefit must be provided outside of the standard payroll process.
Directors and the Small Benefit Exemption Scheme
Eligibility of Directors
Directors can avail of the Small Benefit Exemption Scheme under certain conditions:
Directors Receiving Fees: Directors who receive fees processed through payroll are eligible for the scheme.
Non-Executive Directors with Dividend Income: Non-executive directors receiving only dividend income may not qualify, as they might not meet the employer-employee relationship requirement.
Unpaid Directors: Typically, unpaid directors do not qualify due to the absence of an employment relationship.
Financial Implications
Implementing this scheme can lead to substantial savings. For instance, providing a €1,000 bonus through payroll to an employee in the higher tax band could cost the business €2,313.54. Utilizing the exemption, potential savings per employee could amount to €1,313.54.
Employees benefit by receiving the full value of the non-cash bonus without deductions for PAYE, USC, or PRSI, thereby enhancing employee satisfaction and morale.
Implementation Steps
To effectively implement the Small Benefit Exemption Scheme:
Select Appropriate Benefits: Choose non-cash benefits such as gift cards, vouchers, tangible gifts, gym memberships, spa treatments, or concert tickets.
Ensure Compliance: Verify that the total value of benefits per employee does not exceed €1,500 annually and that no more than five tax-free benefits are provided within the year.
Maintain Records: Keep detailed records of the benefits provided, including dates and values, to ensure compliance and facilitate reporting.
Report to Revenue: Since 1 January 2024, the scheme falls under Revenue’s Enhanced Reporting Requirements. Employers must report any eligible non-taxable benefits to Revenue in real time.
By adhering to these guidelines, businesses can effectively utilise the Small Benefit Exemption Scheme to reward employees in a tax-efficient manner, thereby enhancing employee satisfaction and retention.
