Director / Employee Awards

[Podgy]

Hi,

Just wondering if anyone knows what type of awards can be given to employee / director with no reporting requirements?

I was'nt registered for PAYE last year so only received dividends. I believe I can have an Exam Award which has no paye/reporting requirments if the employee earns under the tax threshold? I did two exams so was thinking 2k & 3k as rewards?

[Clare@InTouch]

There are very strict rules for rewarding employees, for example under suggestion schemes. I've not heard of an exam award, and certainly the amounts you suggest would seem excessive. There's also the fact that you're awarding them to yourself, which would very likely make them taxable anyway.

There's some guidance on Incentives here: HM Revenue & Customs: Incentive awards and PAYE

If you provide an employee with a cash award, then you must include its value in the employee's gross pay when working out both PAYE tax and NICs.


You can pay an employee a small salary though, one that is below the limits and therefore no PAYE scheme necessary.

[northernladuk]

Did you use google first?

HM Revenue & Customs: Examination grants

Exceptions
You have no reporting requirements and no tax or NICs to pay if all the following conditions apply:

the employee earns less than a rate of £8,500 per year
the award is discretionary – ie, you’re under no legal obligation to provide it
it’s not part of the employee’s duties to pass the exam the award is a one-off lump-sum payment
the award is reasonable and there’s no evidence that it represents disguised remuneration

Employment income: examination grants to employees

Also there is this...

http://www.hmrc.gov.uk/helpsheets/hs207.pdf

Encouragement awards
An encouragement award is one that is made for a suggestion which has
some special merit or reflects praiseworthy effort on the part of the person
making the suggestion. The permitted maximum for an encouragement
award is £25. If the encouragement award exceeds £25 the excess over £25
is taxable.
Financial benefit awards
There are additional conditions which apply to financial awards:
• awards are only made following a decision to implement the suggestion
• the decision to make an award is based on the degree of improvement
in efficiency or effectiveness likely to be achieved. This is measured by
– the prospective financial benefits and the period over which they would
accrue, and
– the importance of the subject matter having regard to the nature of the
employer’s business
• the amount of the award does not exceed
– 50% of the expected net financial benefit during the first year of
implementation, or
– 10% of the expected net financial benefit over a period of up to five
years subject, in each case, to an overriding maximum of £5,000.
Where an award exceeds £5,000, the excess over that figure is taxable.
If two or more employees receive an award in respect of the same
suggestion, the exempt amount is divided among them in the same
proportion as their individual awards bear to the total sum awarded.

But I don't think this will wash in a one man company...

Well saying that I don't think any of this would wash in a one man company at all. There is no reason to reward you for passing an exam when you are the owner of the company and sole employee so I believe it fails the bit I have bolded quite clearly.

[Greg@CapitalCity]

I believe I can have an Exam Award which has no paye/reporting requirments if the employee earns under the tax threshold?

A tax-free Exam Award??! Never heard of that I am afraid. Any form of reward usually makes up the employees/Directors taxable earnings, and as such would need to be channeled through your (currently non-existent) payroll system.

[Greg@CapitalCity]

I believe I can have an Exam Award which has no paye/reporting requirments if the employee earns under the tax threshold? I did two exams so was thinking 2k & 3k as rewards?

Ahh, I see what you mean now. The threshold being £8,500. Although the HMRC guidance isn't exactly clear on this, one of the eligibility conditions is you can't be a Director.

[Clare@InTouch]

....Lots of links....

Now you're outlinking me!

[Podgy]

There are very strict rules for rewarding employees, for example under suggestion schemes. I've not heard of an exam award, and certainly the amounts you suggest would seem excessive. There's also the fact that you're awarding them to yourself, which would very likely make them taxable anyway.

There's some guidance on Incentives here: HM Revenue & Customs: Incentive awards and PAYE

If you provide an employee with a cash award, then you must include its value in the employee's gross pay when working out both PAYE tax and NICs.


You can pay an employee a small salary though, one that is below the limits and therefore no PAYE scheme necessary.

Thanks - so could I take the following which is up to the ST threshold while I was not registered for paye;

£5720 (2010-11)
£5720 (2009-10)

I am submitted the accounts for both years (amendments to 2009/10)

What about;
£5460 (2008-09) - is there any way of submitting in 2009-10? or is that pushing it?

[northernladuk]

Thanks - so could I take the following which is up to the ST threshold while I was not registered for paye;

£5720 (2010-11)
£5720 (2009-10)

I am submitted the accounts for both years (amendments to 2009/10)

What about;
£5460 (2008-09) - is there any way of submitting in 2009-10? or is that pushing it?

What do you mean take?

Get an accoutant and ask them. For the numbers you are talking about you don't want to rely on free advice from a public forum. Also take head of the advice you are being given, even if it isn't the answer you are clearly looking for.

[Clare@InTouch]

Thanks - so could I take the following which is up to the ST threshold while I was not registered for paye;

£5720 (2010-11)
£5720 (2009-10)

I am submitted the accounts for both years (amendments to 2009/10)

What about;
£5460 (2008-09) - is there any way of submitting in 2009-10? or is that pushing it?

As a company director you would have needed to declare these on your tax return for each year in question, and it may be too late to go back and now make amendments to some years. Plus, if you're amending accounts and tax returns for so many years then you're nigh on inviting an investigation.

What were these amounts originally declared as in the accounts and SATRs? Dividends?

[captainham]

Ignoring the fact that dividends need to be declared via SA, if you're also a company director then you have to follow SA regardless of whether you pay yourself any money or not.

HM Revenue & Customs: Do you need to complete a tax return?

If your context of 'reporting requirements' means 'avoiding filing an SA' then I don't see how you can avoid this assuming you're a director.