Baker Watkin chartered accountants and chartered tax adviser

 
    Long service awards to employees  
     
 

 

Baker Watkin

Middlesex House

Rutherford Close

Stevenage SG1 2EF

t: 01438 750555

e: enquiries@bakerwatkin.co.uk

 

Long service awards to employees

Recent discussions with my clients indicate that several of you are not aware that tax free payments can be made to employees to mark their long service. The details are contained in Section 323 ITEPA 2003.

Payments to employees by employers to mark long service are generally taxable as earnings. However, there is a concession for some long service awards that exempts them from tax and National Insurance.

The conditions for the exemption to apply are as follows:

  • The award must be made to mark a period of more than 20 years service with the same employer.
  • It must be a non-cash award (so something other than money)
  • The value of the award must not be more than £50 for each year of service, so a maximum of £1,000 for 20 years' service applies.

If a non-cash award fails to satisfy the conditions for the exemption, or exceeds the £50 per year of service limit the employer can pay the tax due under a PAYE Settlement Agreement. Alternatively, the excess over £50 per year of service would be taxable on the employee. Likewise, if the whole award fails to meet the exemptions, the full amount will be taxable on the employee.

Cash awards do not qualify for any exemptions at all, nor do readily convertible assets and an employer would have to operate PAYE as normal.

The non-cash long service awards can also be paid to company directors as well as employees.

If you would like to discuss these aspects with me further then please call Andrew Watkin.

Download this briefing as an Adobe PDF document

The information contained in this briefing is based on information available as at December 2009 and may be subject to amendment. It is written as a general guide and is not a substitute for professional advice. You are strongly recommended to obtain specific professional advice from us before you take any action. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this briefing can be accepted by Baker Watkin or the partners.