Tax-Free Awards for Staff

HMRC currently has a tax incentive scheme to reward staff for “special efforts”, or who come up with a “really good idea or suggestion” that saves the company money.

Encouragement award

Firstly, HMRC will allow you to pay a tax-free reward of up to £25 for good suggestions or for special effort made in the normal course of duties by an employee.

Financial benefit award

Secondly, HMRC will allow you to pay a tax-free reward to an employee if they come up with an idea that is outside the normal course of their employment duties and will save the company money. The maximum that can be paid tax-free is £5,000.

The idea must lead to an improvement in efficiency or effectiveness of the business, which in turn will result in a financial benefit to the company.

The company must adopt the idea and you must be convinced that the idea will work and will lead you to make savings.

The level of the reward is then calculated as the greater of 50% of the savings to the company, or 10% of the savings expected over the next 5 years, with a cap of £5,000.

Please remember if it is your job to think of ideas in a certain sector, then this will not count. It must be unrelated to what you would expect to think about in the day to day performance of your duties.

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