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Tax treatment of incentive scheme awards

Source: HM Revenue & Customs | | 11/11/2021

Some companies use incentive award schemes to encourage their employees in various ways. For example, to sell more of their own goods and services. The award can include cash-based, vouchers or other gifts.

Where an employer meets the tax payable on a non-cash incentive award given to a direct employee by entering into a PAYE settlement agreement (PSA), the award is not chargeable to tax on the employee.

With the exception of non-cash awards covered by a PSA, the incentive awards made to employees are chargeable as employment income. The value of these awards is calculated as follows:

Cash
The value to use is the total amount of cash awarded.

Vouchers
If the award consists of vouchers, then the value to use is the full cost to the provider of making the award.

Other gifts
If the award is something other than vouchers, then the charge is usually the full cost to the provider of making the award. There are certain exceptions for the very low paid.

There are also concessions which HMRC makes to enable you to say thank you to staff for specific areas including encouragement awards, suggestion schemes and to reward long service.



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