Tax Helpsheets

Back to Helpsheets

Pay Staff Tax Free - Staff Suggestion Scheme

This scheme is specifically allowed and provided for in the legislation. It is very simple to operate and works as follows...

• Employees can be rewarded for making suggestions that relate to your business activities, and if the conditions apply, the payments can be made without tax or NI being payable. You get tax relief on the payment through your accounts, just as you do with paying normal salaries.
• If a suggestion is implemented and a real financial benefit is expected to accrue relating to improvement in efficiency or effectiveness, the employee can be paid the greater of:
  • half the financial benefit that the employer reasonably expects will result from the adoption of the suggestion in the first year after its adoption or;
  • one tenth of the financial benefit that the employer reasonably expects to result from its adoption in the first five years after its adoption

  Subject, in each case, to an over-riding maximum of £5,000

• Payments of up to £25 can be made for employees' suggestions as an encouragement, whether or not the suggestion is implemented. Employees can make as many suggestions as they want.
• The suggestion must be outside the scope of the employees' normal duties, so a sales employee or director could suggest a production idea for example.
• The suggestion must not be made in a meeting held for the purpose of proposing suggestions.
• The scheme must be formally set up but no formal approval is needed from HM Revenue & Customs.
• It must be open to all employees or a particular description of them and not be part of their contractual pay or benefits entitlements.

How We Can Help You

We can assist you in setting up a staff suggestion scheme and providing basic scheme rules.