[02.02.24]
If you want your employee suggestion box to be overflowing, you may want to provide a financial reward to your employees. HMRC allows a business to reward their employees for providing suggestions that benefit the business, with no tax, National Insurance and reporting obligations – but only up to a certain limit.
There are two kinds of award:
- an encouragement award – for good suggestions, or to reward employees for special effort. This award is exempt from tax and National Insurance up to £25.
- a financial benefit award – for suggestions that will save or make the business money. This award is exempt up to £5,000 – and is the greater of:
- 50% of the money that the suggestion is expected to make or save the business the year after it is put into action
- 10% of the money that the suggestion is expected to make or save the business in the first five years after it is put into action
There are some conditions for an award to be exempt from tax and National Insurance:
- the suggestion scheme must be open to all employees – or to an entire group of employees, for example everyone in a particular office
- the suggestion must be about the business
- it must be likely that the employee would not have made the suggestion as part of their normal work
- the suggestion can not be made at a meeting where the purpose is to propose new ideas
If awards are given that are higher than these limits, the extra payment counts as earnings and PAYE tax and National Insurance must be deducted through payroll.
Please note that these awards are not available for self-employed businesses!
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