Staff suggestion box

We have a staff suggestion scheme in place and one of the staff has come up with a great idea that we think will creat less waste during our manufacturing processes. Consequently, we think it will save us about £14,000 over the next twelve months and about £10,000 annually. What is the maximum that I can pay him without having to deduct tax and NI?

1st April 2011

As a result of you adopting the suggestion and it being expected to lead to efficiencies that you estimate will save you money, you meet the exemptions under the 'financial benefit award' rules for staff suggestion schemes.

There are two ways of calculating the award. The first is to pay 50% of the expected first year savings.  The second method is to apply 10% to the expected savings over the first five years. 

With both of these methods, there is an overriding amount of £5,000 that can be paid without the employee being subject to PAYE and NI.  Any payment above this will be subject to PAYE and NI and should be added to your employee's wages in your normal payroll calculations.

The first method results in an award of £7,000 and the second £5,400. However, if you wish to avoid tax, then the maximum you can pay him is £5,000. You would then not need to make any deductions and have no additional reporting requirements.

If you would like any further information on this, please feel free to contact your local TaxAssist Accountant.

By Jo Nockels

Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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