Q:I’ve got a couple of staff at my company who are approaching long service milestones and I want to award them with something to show appreciation and recognition. One has been here for 30 years, the other 15. How much tax would I need to pay if I want to give them a financial reward?
A: It’s a lovely idea to show appreciation and recognition for your veteran staff in this way. But you’re right to check about the tax implications before cementing your plans. Long-service awards do carry some reporting obligations regarding NI and tax but it all depends on what type of award you opt for. Will it be cash? Or it could be shares? These are one of the items categorised by HMRC as a ‘readily convertible asset’. Or it could be something else. The total value of the award and the length of the employee’s service are also key factors. You must also check whether they’ve had a similar award in the past at a previous milestone.
Let’s take your team member who has been with you for 30 years as an example to start with. You may want to change your approach and think of a different award, rather than cash.
That’s because you could give them a very significant non-cash award without having to pay any tax or report on it. You could reward them with something that has a value up to £1,500 and still be exempt. You’re allowed to offer an award worth less than £50 per year of service and the fact that they have been with you more than 20 years means they qualify.
One caveat though; they would not be exempt if you have already given them another long service award in the last ten years. So, you might need to check that they didn’t get one for, say, their 25th anniversary as well.
With your staff member who has been with you for 15 years, they are 5 years short of qualifying for exemption, unfortunately.
And, circling back to your thoughts on financial rewards, we should emphasise that cash awards are not exempt. All cash awards count as part of their earnings. So, if you went down a cash awards route, you would need to do the usual deductions of NI and PAYE tax through payroll.
Those are the essential points of the rules, but, of course, there are even more granular details that we could dive into. For example, if you decided to offer shares as the award instead, there are some other considerations. If you’d like to discuss the finer details of your proposed long-service award scheme, please give us a call.