Setting up a suggestion scheme for your staff has many benefits. Not only does it make them feel like a valued member of your business but you can also reward them with tax-free cash! You never know, they might come up with ideas that you had never thought of and make your business more profitable.
To benefit from the tax-free cash you must set up a suggestion scheme that is open to all employees. You can then pay your staff £25 for every good idea that they put forward. This is known as an “encouragement award”.
If an employee comes up with an idea that is subsequently implemented and there is an expected financial benefit you can pay up to £5,000 tax-free. The reward must not exceed 50% of the expected financial benefit during the first year of implementation or 10% over five years. This is known as a “financial benefit award”.
You do not have to register the scheme with HM Revenue and Customs, but you must keep records showing how you calculated each reward. You must also draw up and retain some rules for the scheme.
Remember the scheme must be open to all employees and not just select groups. You cannot restrict the scheme to any select group e.g. directors. The suggestions made must be outside the employee’s normal duties; so if you have a member of staff who is employed to research and develop new products he cannot be rewarded for coming up with a new product. Another rule is that suggestions must not be made at meetings held for the purpose of generating ideas. We would recommend that you have a “suggestion box” open for all.
For more information on tax saving opportunities please contact us on 01604 790646.
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