Would you like a €1,000 tax free payment from your limited company? No, it’s not a trick question. The good news is that you are entitled to this tax free benefit each and every year.
So how exactly? Under the Small Benefits Exemption Scheme, company directors and employees can receive a non-cash bonus of up to €1,000 value on a completely tax free basis each year from their employer company. As the payment must be in a non-cash form, the most common way to avail of this scheme is by purchasing gift vouchers.
WHAT ARE THE RULES?
The important conditions to be aware of are:
- The gift voucher (s) must be purchased from employer company funds e.g. from the employer company bank account or company credit card. The director or employee cannot purchase a voucher themselves and seek reimbursement from their employer company. This is especially important for Personal Service Company contractors to be aware of.
- The scheme allows for a maximum of two vouchers per year to a total maximum value of €1,000 per year. A total of two vouchers can be purchased for each individual per year, even if you do not take take the full €1,000. Therefore to maximise the tax relief available, you should ensure to take the full €1,000 over no more than two vouchers.
- You can avail of the scheme each year, so put a reminder in your calendar to make sure you don’t forget to claim the voucher(s) each year!
- The amount previously available under this scheme was €500, but it was increased to €1,000 for 2022 as part of the government’s Budget 2023 announcement. For anyone who had already received their €500 tax free voucher in 2022 prior to this announcement, you can simply purchase a second voucher for €500 before the end of 2022 to avail of your full €1,000 entitlement.
HOW MUCH TAX WILL I SAVE?
A higher rate tax payer, will save up to €1,083 in tax by availing of this scheme.
If you are a a standard rate tax payer (i.e. the 20% tax band), your tax savings will be less.
The gift voucher is also a fully deductible business expense for your company.