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Sam, Accountant
Category: Tax
Satisfied Customers: 14164
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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We are setting up an incentive program application. Businesses

Customer Question

We are setting up an incentive program application. Businesses will buy points from us which will be given to employees as an incentive. These points will be used to enter competitions that we will offer ranging from vouchers to cars. We need advice on the tax implications of the prizes.
Will the employee have to pay tax on the prize if won it through a competition
Will we have to pay tax on the prizes given out if we buy them
What is the best way to go about offering prizes to employees through us, i.e tax reward schemes?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Thanks for your question, I am Sam and I am one of the UK tax experts here on just Answer.
Initially as the employee will in essence be getting the points for free - as awarded as an incentive then there is no tax implication on you then allowing those points to be entered into a competition, which allows them a chance to win prizes.
But as these would be awarded as an incentive, rather than available to all employees to benefit from, then whether an award of voucher or prize, then all would have a cost to the employer and with the employee, This would fall under the tax position of employee tax incentive schemes.
Furthermore with the vouchers, the employer would have to report the voucher position as having been provided to a third party to the employee, and they will also then suffer Class 1A National Insurance - and the employee will suffer tax
This idea will prove very costly to the employer and also have ramifications on the employee if they won.
This is a very complex area of tax and I would strongly urge that you seek the advise of a local accountant who has knowledge of tax incentive schemes, as this is a specialist area too complex a subject to fully advise on in a forum such as this. I know you maybe hoped for a more in depth answer, but we are an information site not an accountancy site where we can recommend and advise (as we are bound by Just Answer and its legal position on information provided - see the terms and conditions)
But to point you in the right direction -
I have added a link here for your information regarding tax incentive schemes
It also covers the topics of cash awards, and non cash awards and the treatment of them, it looks also at whether these awards can then be passed onto family members of the employee, which is also something else you need to consider.
It looks at whether the employer is willing to meet the tax arising for the employee, under a PAYE settlement agreement which are ideal for the provision of non cash awards (such as vouchers)
But form your perspective you will account for the monies you make from the sale of such "points" less your costs to provide, promote and provide the end "prize"
So in essence will be liable to tax on your profits.
I do hope this opens up the topic for you, with the pitfalls to consider and what you need to ensure is put in place both for yourselves and the businesses with whom you wish to attract to use this service.
Let me know if you have any follow up questions on the information provided.