Tax tips mini-series (1 of 4)

This is the first of a mini-series in which we will look at small tax breaks for companies. In the right context they can save you and/or your employees money. These aren’t tax avoidance schemes, but tax-free allowances enshrined in legislation.

The topics we will be covering are:

Staff suggestion scheme

Perhaps the most flexible tax break is the staff suggestion scheme. In fact, it is two schemes in one: ‘encouragement awards’ and ‘financial benefit awards’. Both allow you as an employer to make a payment to an employee free of income tax and National Insurance (NIC) if they make a worthwhile suggestion that benefits your business.

The former is capped at £25 so we won’t explore it in detail here, but ‘financial benefit awards’ can be up to £5,000 per suggestion per person (though the same suggestion by more than one person is apportioned). This represents a significant tax saving to your employee, and a NIC saving for you. All you have to do is stick to the rules, which include:

  • The scheme must be open to all employees, or an entire group of employees (e.g. an office).
  • The suggestion mustn’t be an idea they would be expected to make in the course of their normal duties.
  • The suggestion must relate to an efficiency/effectiveness gain for your business.
  • You must adopt the suggestion.
  • You must reasonably expect the suggestion’s implementation to lead to a financial benefit.
  • The tax free amount is the greater of 50% of the financial benefit of the suggestion in the first year, or 10% of the benefit over the first five years, subject to a cap of £5,000.

So long as this limit isn’t breached there are no reporting requirements. The staff suggestion scheme is a great way to encourage your employees to boost your business, all courtesy of the tax man!

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