We run a lot of Reward & Recognition programmes for clients, whether for long service awards, thank you awards or other team or individual incentives.
Clients setting up their new SmartAwards™ reward programme often ask about the tax treatment of the gifts, prizes or awards that are given to employees.
Fortunately, the tax treatment is simple and there are three key options that employers can choose.
All money given to staff as a gift or in recognition of work achievements is always taxable. The way they're given - cash, vouchers, gift - makes no difference.
Monetary awards given through SmartAwards™ are classed as Cash Vouchers according to HMRC definitions.
There are, therefore, three ways to handle this tax in the UK:
- Pay the straight award to the employee and leave it up to them to report and pay their own tax via their P11D. This is the least commonly used approach as it moves the burden to the employee which seems inconsistent with saying thank you to them.
- Gross up the amount (work out the tax and add it to the award) and run it through payroll so the tax is paid at the time via PAYE, but the award goes onto a card via our SmartAwards™ system. This is the option most commonly chosen by smaller companies - we do this ourselves at RG for our own staff awards.
- Agree a PSA (PAYE Settlement Agreement) with HMRC for each year. The customer agrees the overall amount that they owe and makes one payment. This avoids lots of paperwork for both the customer and HMRC. Larger companies tend to find this the easiest.
Whichever option is chosen, Reward Gateway provides reports on everyone who has been awarded in a year so clients can make PSA payments or reconcile tax paid.
If clients want to avoid the cost of awards and tax altogether, our eCard peer-to-peer recognition product encourages saying a simple thank you with no money involved - so it's even simpler.
Read more about The power of eCards for driving continuous recognition
Please note, Reward Gateway are not tax advisors. Find out more about this particular topic on HMRC's Expenses and benefits: vouchers webpages and further information about employee benefits taxation in general should be sought from the HMRC or a tax advisor directly.