Excerpt from Inland Revenue Tax Guide on Expenses and Benefits 480 (2003)
Long service and suggestion scheme awards
Long service awards made to directors and employees as testimonials to mark long service, which take the form of tangible articles of reasonable cost, or of shares in an employing company (or another company in the same group) when the relevant period of service is not less than 20 years and no similar award has been made to the recipient within the previous 10 years. An article may be taken to be of reasonable cost where the cost to the employer does not exceed £20 per year of service.
Awards under suggestion schemes made to employees where the following conditions are satisfied:
- there is a formally constituted scheme under which suggestions are made, and it is open to all employees on equal terms;
- the suggestion for which the award is made is outside the scope of the employee’s normal duties. The test is whether, taking account of his or her experience, the employee could not reasonably have been expected to put forward such a suggestion as part of the duties of the post. Where meetings are held for the purpose of putting forward suggestions, they should be regarded as part of their duties, and any consequential awards would not be within the terms of this concession;
- awards other than encouragement awards (see (g) below) are only made following a decision to implement the suggestion, and are made directly to the employee or employees concerned;
- the decision to make an award other than an encouragement award is based on the degree of involvement in efficiency and/or effectiveness likely to be achieved measured by reference to 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 an 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 5 years
- where a suggestion is put forward by more than one employee, the award made under (e) above is divided between them on a reasonable basis;
- any encouragement award is of £25 or less. An encouragement award is one which is made in respect of a suggestion which has some intrinsic merit and/or reflects meritorious effort on the part of the employee in making the suggestion.