The ultimate guide to the small benefit exemption scheme

If you’re interested in rewarding your employees, tax free, you’re in the right place as we have the ultimate guide to the small benefit exemption scheme in Ireland. From how it works to the kind of benefits you can offer as part of the scheme, when you can use it and limitations to be aware of, read on to find out more.

What is the small benefit exemption scheme?

Ireland has one of the most generous approaches to tax-free rewards in the world, courtesy of the small benefit exemption scheme. The Irish Revenue’s Small Benefit scheme allows you to gift your payrolled employees and directors up to five small non-cash benefits each year up to a value of €1,500, free of PAYE income tax, USC (universal social charge) and PRSI (pay related social insurance). First introduced in the 2004 budget with a €250 limit, this limit increased to €500 in 2016, then to €1,000. In January 2025 though, budget 2025 changes came into effect taking the small benefit exemption to €1,500 from 1st January 2025, per employee per year.

How does the small benefit exemption scheme work?

From 1st January 2025, Irish employers can use the scheme to gift their employees up to 5 tax-free rewards each tax year in non-cash form, to a total combined value of €1,500 per employee, per year. If it goes over this threshold, the tax exemption is lost. The scheme runs to the calendar year, and any unused allowance benefits can’t be carried over to the following year.

What kind of small benefits can I offer?

As the small benefit exemption can only be used for non-cash rewards, gift vouchers and Gift Cards are popular ways to distribute small benefits to Irish employees, allowing employees choice and flexibility in how they spend their reward. The Gift Card can only be used to purchase goods or services, and can’t be redeemable for cash. Town & City Gift Cards are a qualifying incentive for the small benefit exemption scheme – these local Gift Cards are available for towns and cities right across Ireland and can be spent with the big brands they know and the local businesses they love – blending choice with support for local businesses. Employers can reward the €1,500 in any total combined value, such as three €300 rewards spaced through the year, or a €500 Gift Card in the summer and €1,000 at Christmas.

Why would I use the small benefit exemption?

Thanks to the small benefit exemption scheme, there is a strong culture of employee benefits and rewards in Ireland. Employee rewards can be used for a wide range of reasons, from boosting motivation to encouraging retention, attracting new employees to supporting staff with the costs of living. Town & City Gift Cards are popular with employees. 97% would like to receive a Gift Card from work that can be spent with local independent and national businesses. Not only are the cards popular with employees, they also help organisations to take an active role in the success of their community, locking spend into local areas and boosting local businesses.

How much can I save as an employee by using the small benefit exemption scheme?

If you choose to offer tax-free benefits to your team through the small benefit exemption scheme, you can save up to €1980.67 per employee, per year for the full €1,500 benefit, compared to paying this benefit through payroll. A €1,500 benefit paid through payroll would be subject to income tax at 40%, USC at 8%, employee PRSI at 4.10% and employer PRSI at 11.15%, with total employer costs of €3,480.57. Just to note that savings are estimated and based on employees in the higher tax band.

Is the small benefit exemption scheme better than cash for employees?

Of course, the major reason to use the small benefit exemption is that it enables organisations to say thank you to their employees for their hard work, while reducing the tax liabilities for both the employee and the organisation. But there are other benefits too. If you gift staff €1,500 or less in their pay, not only will it be taxed, it goes into their bank with their regular salary and likely used to pay regular bills. Tangible small benefits on the other hand, say in the form of a physical or digital Gift Card they can hold in their hand or digital wallet, is separate from regular pay and opens the doors to a wide range of products and experiences. Employees who receive Town & City Gift Cards in Ireland tell us they use their small benefit on everything from groceries to holidays, new clothes to fuel.

Are there any exceptions to the small benefit exemption?

Alongside the stipulations that the small benefit is non cash and that any vouchers or Gift Cards given are only redeemable for goods and services, a key point to note is that the tax exemption only applies where the benefit doesn’t form part of a salary sacrifice arrangement. So you can’t offset the amount against an employee’s pay. The trivial benefit has to be purchased by the employer too.

Do I have to report small benefits to the Revenue?

Yes, since January 2024 there has been a requirement for employers to notify Revenue of the date and value of any small benefit, such as tax free vouchers or Gift Cards, given to employees. This has to be done either on or before the date the benefit is given to the employee (e.g. in ‘real time’). It can be reported either through ROS or a suitable payroll software package as a tax exempt benefit.