Financial Benefit Awards

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Morning all,

I have never before come across the exemption under ITEPA s321 for awards made by employers to employees who have come up with a suggestion of financial benefit to the business. It allows a payment of up to £5,000 to an employee tax free, subject to certain conditions.

A client of mine has come across it though and recently had an employee make just such a suggestion. I'm happy it qualifies and the amount payable is under £5,000 and it about 10% of the anticipated benefit.

My question is therefore just on the last bit, does it go through payroll/RTI as a tax free payment or does it not get reported at all? I have of course had a scout about but all the guidance I've seen is somewhat silent on the subject, making me think it's not reported at all, but I presume my learned colleagues here will know better than I.

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By Hugo Fair
03rd Jun 2021 17:19

With the usual caveat that, although I had heard of the special treatment of rewards for suggestion schemes, I've never actually handled one ...

The guidance on GOV.UK is at https://www.gov.uk/expenses-and-benefits-employee-suggestion-schemes ... and includes the following statements:
* Financial benefit awards are exempt (from tax and NI) up to £5,000
* If you give awards that are higher than the limits, the extra payment counts as earnings - so you must report the extra to HMRC and deduct and pay PAYE tax and NI on it through payroll

So my reading would be (as long as the payment meets all the criteria and remains within the limits) that exempt means no need to report or include within Payroll.

Of course if your software allows you to set up the payment as free of tax and NICs (ER as well as EE) then I guess there's no harm in putting it through payroll and hence RTI.

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Replying to Hugo Fair:
By Duggimon
04th Jun 2021 08:25

Thanks Hugo, that's more or less where I was with it, I was leaning towards leaving it out entirely but it could go in as an after tax payment.

On the one hand, sticking it through the payroll makes it more visible to HMRC and increases the chance they might ask about it (this isn't particularly a problem as it's legitimate, however I'd rather avoid the time it would take) but on the other hand a payment to a staff member feels like it ought to go through the payroll, and this is what the client expects to happen, I haven't yet said to them one way or another.

The position would seem to be that it does not have to go through the payroll but it can, and without any actual rules in place, I suppose it's a matter of preference. I think I'll suggest to the client they follow my preference.

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