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.
What counts as a long-service award?
If you provide an award to your employees for their long-service in employment to your company, you might have to report these awards to HMRC and, depending on the value of the award, there might be additional tax and National Insurance to pay.
Whether you have to report it and pay anything extra depends on the nature of the award. The rules differ depending on:
- How much the award is for
- Whether the award is cash, non-cash or ‘readily-convertible-assets’ (i.e. something that is easy to sell and convert into cash, such as shares in the company)
- How long the employee has worked for you
- Whether they have already received a long-service award from you
Are there any exemptions?
If the award to your employee meets all of the following conditions, there is no need to report or pay anything on a non-cash award. The conditions are that:
- The employee has worked for you for at least 20 years
- The award is worth less than £50 per year of service
- They haven’t received a long-service award from your company in the last 10 years.
This means that an employee who has worked for your company for 25 years can receive a non-cash award worth up to £1,250 without a need for you to report this to HMRC or pay any additional tax or National Insurance on the award.
However, if the award forms part of a salary sacrifice arrangement, you do need to report this to HMRC.
What do you need to report and pay?
You will need to report any long-service awards which aren’t exempt, as detailed above. The costs of these awards need to be reported to HMRC and you will need to deduct and pay tax and National Insurance on the awards.
For cash awards, you will need to add the value of the award to the employee’s other earnings and then deduct PAYE tax and National Insurance through payroll just as you would their other earnings.
For non-cash awards, if the employee has at least 20 years’ service and hasn’t received an award in the last 10 years, you will report this on the P11D form and pay Class 1A National Insurance on the value of the award that is above the £50 per year of service threshold. If the employee doesn’t meet the 20 years’ service criteria, or has received an award in the last 10 years, you need to report the award on your P11D and pay Class 1A National Insurance on the full value of the award because the employee won’t meet the exemption criteria.
If the award comes in the form of an asset that is easy to convert to cash (referred to as a ‘readily-converted asset’ by HMRC), it needs to be reported in the following way:
- If the award is to an employee with at least 20 years’ service and who hasn’t received an award in the previous 10 years, you need to add the value of the award which is above £50 per year of service, to their other earnings. You will then deduct and pay PAYE tax and Class 1 National Insurance on this as though it were any other earnings.
- For all other employees, you need to add the total value of the award to their other earnings as they won’t be eligible for any exemptions and then deduct and pay PAYE tax and Class 1 National Insurance on the award through your payroll.
If the award forms part of a salary sacrifice arrangement and the amount of salary given up is greater than the value of the award, you need to report the salary amount instead. This only applies to salary sacrifice arrangements made after 6th April 2017.
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.