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Do you know about the generous tax advantages of Suggestion Schemes?

3 December 13 | By: Jas Jhooty


Do you have an Employee Suggestion Scheme in place?

Forward thinking employers should be actively welcoming employee suggestions as they can result in the generation of a wealth of creative and valuable ideas that can save your organisation both time and money. Encouraging employees to provide work-related suggestions can help to improve customer satisfaction, reduce costs and otherwise improve efficiency. Employees are an extremely valuable tool in idea generation, as they often see possible improvements from the front line that managers perhaps do not.

Is your company receiving enough (if any) innovative ideas from your employees? If not, surely it’s time to think about how to encourage this. Involving employees in improving company processes is an excellent way to make them feel engaged and loyal. They will want your organisation to do well, and will feel that they are contributing to its’ success.

Tax advantages of suggestion schemes

As well as providing for a mechanism to relay efficiency savings ideas that will benefit your organisation, there are also some generous tax concessions to reward employees for participating in the suggestion scheme. There are two types of awards that employers can make relating to suggestion schemes that can enjoy significant tax breaks. These are: -

Encouragement Awards

The legislation allows for some generous tax breaks for suggestion schemes. Encouragement awards of up to £25 can be paid both tax & NIC free for an employee suggestion that has merit or that shows special effort on the employee’s part. Any excess above £25 will have to be payrolled.

Financial Benefit Awards

Employers can also provide a financial benefit award to employees for suggestions that meet the following three conditions: -
  • The suggestion relates to an improvement in efficiency or effectiveness.
  • The suggestion is actually adopted.
  • There must be an expectation for the organisation to financially benefit from the suggestion’s implementation.
Financial benefit awards are exempt from tax and NICs up to the greater of the following, subject to an overall limit of £5,000: -
  • 50% of the financial benefit you reasonably expect the suggestion to lead to in the first year of its adoption
  • 10% of the financial benefit you reasonably expect the suggestion to lead to in the first five years following adoption

Conditions for these exemptions

  • The suggestion scheme must be open to all of your employees – or to an entire group of employees e.g. everyone based in a particular office.
  • The suggestion relating to the award must relate to your business.
  • The employee receiving the award couldn’t reasonably be expected to have made the suggestion in the normal course of their duties of employment.
  • The suggestion can’t have been made at a meeting held for the purposes of proposing suggestions.

How emTax can help

Any suggestion scheme will require guidelines to ensure its success. The focus must be on quality over quantity – you don’t want to end up with hundreds of suggestions which are all completely unfeasible. emTax consultants can help you to set guidelines around specific aspects of your business where suggestions will be welcome e.g. cost saving ideas and process improvements. This will help ensure that the suggestions received are sensible and well thought out.

Finally, make sure the suggestion scheme is promoted effectively! The communication should be ongoing, and should make sure employees are aware of how the scheme works and how to make a suggestion. If the idea is implemented, ensure this positive news is communicated across the company – this will ultimately encourage staff to make further suggestions.

For help on designing your tax efficient suggestion scheme or on any other employment tax matter, please do not hesitate to contact us.


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