Last updated: 18 October 2026
What are the tax rules for employee reward schemes?
Most rewards you give employees are taxable as earnings and must go through payroll with PAYE and NIC. That includes cash bonuses, vouchers that can be exchanged for cash, and gift cards. The main tax-free options are trivial benefits costing £50 or less per gift (with a £300 annual cap for directors of close companies), long-service awards worth up to £50 per year of service for 20 years or more, and staff suggestion scheme awards. Larger non-cash rewards can be settled by the employer through a PAYE Settlement Agreement (PSA).
Common reward types and their tax
| Reward | Tax position |
| Cash bonus | Taxable earnings through payroll |
| Gift card or voucher | Taxable; cash vouchers through payroll, others on P11D or PSA |
| Trivial benefit (£50 or less, not cash, not a reward for work) | Exempt |
| Long-service award (20+ years, up to £50 per year) | Exempt |
| Staff suggestion award (up to £5,000 for implemented ideas) | Exempt |
| Annual party (up to £150 per head) | Exempt |
| Recognition points exchanged for goods | Taxable |
| Shares through an approved scheme (SIP, SAYE, EMI, CSOP) | Tax-advantaged |
Trivial benefits: the catch
A trivial benefit can’t be given as a reward for performance or in recognition of services. A birthday gift or a seasonal bottle of wine works; an “employee of the month” voucher doesn’t. That means most formal reward schemes don’t qualify for the exemption.
PAYE Settlement Agreements
With a PSA, the employer pays the tax and Class 1B NIC (15%) on minor or irregular rewards, so the employee receives them tax-free and nothing goes on the P11D. The tax is grossed up, so it costs more than the reward. You must agree it with HMRC by 5 July after the tax year and pay by 22 October.
Example
A retailer gives each of its 40 staff a £100 shopping voucher for hitting a sales target. Because it’s a reward for performance, the trivial benefits exemption doesn’t apply. The retailer includes the vouchers in a PSA. For basic rate staff, the grossed-up value is £125 each, so tax is £25 per person, plus Class 1B NIC of 15% on £125, £18.75, making a total cost per employee of £143.75.
Mandatory payrolling of benefits
Mandatory payrolling of benefits in kind starts in April 2027 and is being phased in. From April 2027 it covers company cars, car fuel, vans, van fuel and medical benefits, and most other taxable benefits follow from April 2028 (HMRC Employer Bulletin, August 2026), so reward schemes need to be set up for real-time reporting by then.
Share schemes
Approved schemes let staff receive shares with income tax and NIC advantages. A Share Incentive Plan can give up to £3,600 of free shares a year. These are better suited to long-term rewards.
Common mistakes
- Treating performance vouchers as trivial benefits
- Missing the 5 July PSA deadline
- Forgetting NIC on cash-convertible vouchers
- Running points schemes without reporting
Frequently asked questions
Are reward cards for referrals taxable?
Yes, usually.
Can I give a £50 gift every month?
Yes, if each meets the conditions, but directors are capped at £300 a year.
Are charity matching schemes taxable?
No, if paid to the charity.
Do rewards count as pay for pensions?
Depends on your scheme rules.
Related: sending flowers to staff, company Christmas parties and tax-exempt bicycle scheme.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with staff reward schemes. See our payroll services service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 18 October 2026. It is not personal advice, so speak to an accountant about your own situation.
