Staff Suggestion Scheme: What a Bright Idea!

The staff suggestion scheme offers a handy, tax-efficient way to boost your business and supercharge morale! Here’s what you need to know.

Staff Suggestion Scheme
Staff suggestion Scheme

(3 minute read)

Today’s tax tip covers:

  • What the Staff Suggestion Scheme is
  • The tax benefits it provides
  • The rules and restrictions you must follow

Employee suggestion boxes are a great way of letting your employees know you appreciate their input and further improve your business. But they also have a little-known superpower:

They’re a handy way to boost your tax position.

How Does the Staff Suggestion Scheme Work?

The staff suggestion scheme is simple. You allow staff to make suggestions about improving your business. When they do, you can reward them for it – tax free!

There two types of tax exemption through the employee suggestion scheme:

Encouragement Awards

Encouragement awards are small bonuses you give to employees for suggestions you won’t implement.

This applies where ideas have intrinsic merit but may not be suitable. For example, where practical issues stop you from implementing the idea.

You can also provide encouragement awards to show appreciation for an employee’s time and effort in suggesting.

This award is limited to £25. Cash awards up to this amount are not subject to tax or National Insurance.

Financial Benefit Award

Financial benefit awards are larger bonuses for employees whose suggestions you will implement. The suggestion must either make or save your company money.

You can give your employee the greater of:

  • Half the financial benefit you’re likely to receive in the first year after implementing the suggestion
  • 10% of the financial benefit you’re likely to receive over the first five years after implementing the suggestion

This is capped at £5,000.

Rules and Restrictions:

The suggestion box must be available to all employees. (You may limit this to all employees in a particular location if you operate across multiple locations)

You can fulfil this rule by adding a suggestion box to an employee webpage or placing a physical box where all employees can access it.

When your employees make suggestions, they must be doing so outside the scope of their regular work. This means you can’t call meetings to ask for suggestions and then claim a tax exemption.

You can only claim for suggestions directly related to your work.

If you go over the limits for what is tax exempt, you will pay tax on the extra.

What now?

For more tax-efficient ways to boost company morale, read our other article about throwing a tax-free staff party!

The Staff Suggestion Scheme is a great way to reward employees for their commitment and contributions. But be careful not to fall foul of HMRC’s rules.

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Kind regards Ilyas