Employee suggestion scheme rewards

Our team of experts tell you what HMRC needs to know about any rewards you give

Our experts at DSR Tax Claims know how hard it is to find good, quality information about HMRC’s tax regulations that is easy to understand, and that’s why we have created these handy guides to tell you everything you need to know. Our aim is to make life easier for our clients and that is why we want to share our expertise with you. You can also call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

Do you need to report financial rewards for employee suggestions to HMRC?

If, as an employer, you run an employee suggestion scheme where you allow your employees to make suggestions that may benefit your business and you reward them for those suggestions, you don’t need to report these rewards to HMRC as long as they meet HMRC guidelines.

As far as HMRC is concerned, there are two type of award:

  • A financial benefit award, which applies to those suggestions which will save your business money or make additional profit. Financial benefit awards are exempt up to £5,000. The exempt amount is whichever is the greater of 50% of the money you expect the suggestion to make or save the business in the year after which you put it into operation, or 10% of the money you expect it to make (or save) your business in the first 5 years after you put it into operation.
  • An encouragement award, which rewards good suggestions or any particularly special effort made by your employees. Encouragement awards are exempt from tax and National Insurance up to a value of £25.

Where the awards are higher than these threshold values, the extra payment needs to be treated as additional earnings and reported to HMRC as such, with the additional PAYE tax and National Insurance deducted through payroll.

Are there any HMRC conditions to these exemptions?

For HMRC to consider the reward to be exempt from tax and National Insurance purposes, the following conditions would need to be met:

  • The suggestion scheme has to be open to all your employees (or all of a certain group of employees, for example, all factory floor workers)
  • The suggestion needs to be about your business
  • It can’t be made at a meeting about proposing new business ideas
  • HMRC has to consider it unlikely that your employee would have made that suggestion as a part of their normal working practices. If suggesting new ideas is part of their job description, the reward wouldn’t be exempt from tax and National Insurance.

How can DSR Tax Claims help?

We aim to make life as simple as possible for our clients and that includes giving you the information you need to make your taxes (and your life) simpler and less stressful.  Our team of experts at DSR Tax Claims are always on hand to help our clients and our excellent standing with HMRC means that we can make sure you don’t fall foul of their regulations, while claiming your maximum tax relief. We can even take care of all that paperwork and deal with HMRC on your behalf too. Call our friendly team on 0330 122 9972 – we’re the tax experts you can trust.

This page was last updated on 07/11/2018.

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