Have you heard about the tax free reward for staff suggestions that will benefit your business? Rewarding staff for suggestions that bring benefit to your business can be done in a tax efficient manner. Yes, it’s a win-win for you and your staff with a maximum incentive of £5,000.
In any business, the people best placed to put forward suggestions for improvement are those that work at the coalface. Working on the production line or having a close relationship with customers, enables employees to get to know very quickly the pain points, weaknesses in the systems and areas for improvement.
Employee engagement was one of the key success factors in the rise of Harley Davidson. Driving employee engagement can be tough however given a stake in the crucial decisions that would affect the company’s future, the Harley Davidson employees became problem solvers on the line.
This type on engagement can bring great financial benefit to your business and should be encouraged. Even if a suggestion fails there can still be a tax free reward with an acknowledgement of £25 to the employee.
Steps required to take advantage of this tax break
It is important to put the correct procedures in place to take advantage of this tax free incentive and the following conditions must be met:
- you must have the suggestions scheme in place before an exempt payment can be made
- the suggestion relates to activities carried on by the employer
- the scheme must be open on the same terms to all your employees or class of employees
- the suggestion could not reasonably have been expected to put forward as part of the employee’s normal duties of employment
- rewardable suggestions are not made at a meeting held for the purpose of proposing suggestions.
Calculating the tax free reward
The amount which you can pay an employee, tax and NI free, for a suggestion is £5,000. If more than one employee comes up with the idea the exemption must be divided between them. The rules contain a formula for working out the actual tax and NI-free amount so you can’t arbitrarily use the maximum exemption.
The exempt amount, subject of course to the £5,000 maximum, is the greater of:
- 50% of the expected net financial benefit for your business during the first year the suggestion is implemented; or
- 10% of the expected net financial benefit over a period of up to five years.
There are potentially so many factors involved in the calculation of the tax free reward that it may be prudent to get professional advice when putting the scheme in place if you do not have your own in-house financial team. In practice any sensible calculation is unlikely to be challenged by HMRC.