It is important to note that there are some qualifying criteria that must be met in order that rewards paid to employees as a result of a staff suggestion scheme benefit from a tax free amount. The main requirements are that there must be a formally constituted scheme open to all employees on equal terms; any suggestion that is awarded by the employer must be outside the employee's normal duties; the suggestion must be implemented and the payment must be awarded to the employee who made the suggestion. For full details of all requirements, or for details on how to deal with an award that is to be shared between a number of employees, you should contact an accountant for further advice.
Providing that the payment meets the qualifying criteria, there are two ways that you can deal with this type of award.
One option available to you is to pay 50% of the expected savings for the first 12 month period. the first £5,000 of such a lump sum can be paid gross to your employee, with any excess then being subject to PAYE.
Alternatively, the second option available to you is to make a payment to the employee of ten percent of the expected savings that are likely to be achieved over the next five years. Again there is a limit of £5,000 that can be paid tax free.