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Why set up employee suggestion schemes?

Setting up an employee suggestion scheme is a perfect way to improve your business and reward your employees at the same time. There are two types of award that HMRC allow employers to implement which do not have tax and national insurance consequences.

Encouragement awards 

This award is for good suggestions or to reward employees for special effort. The tax and national insurance exemption applies to awards up to the value of £25

Financial benefit awards

This award relates to suggestions that will save or make your business money. The amount awarded is exempted from income tax and NIC up to the greater of the following:

  • 50% of the money you expect the suggestion to make or save your business the year after you put it into action; and
  • 10% of the money you expect it to make or save your business in the first 5 years after you put it into action.

This is capped at £5,000 and there are a few conditions that must be met.

  • The suggestion scheme must be open to all your employees – or to an entire group of employees (e.g. everyone in a particular office);
  • The suggestion must be about your business;
  • It must be likely that your employee would not have made the suggestion as part of their normal work; and
  • The suggestion cannot be made at a meeting for proposing new ideas.

If you would like to find out more about employee suggestion schemes or other tax efficient employee incentives, please do get in touch.

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