EX Gratia or Voucher

Seve OB

If a company if giving staff €1,000 upon closure and staff being made redundant

Can anyone explain why a tax advisor would advise the company to pay the €1,000 as an ex gratia amount over gifting them a voucher?

all I've been fed is it is for tax purposes but with lifetime limits on Ex Gratia amounts and no gifts having been made this year, it makes no sense to me

surely sensible tax advice is to give a voucher?

ELM327

Sensible tax advice for an employee would be to receive a voucher as these are tax free up to 1k in 12 months.

The same may not be true for an employer

alias no.9

There is a minimum tax free allowance in excess of €10k on ex gratia redundancy payments. It increases with years of service.

ThreeGreens

If €1K is the amount that the employer has decided to give, then surely employees would much prefer to receive that tax free in cash (which they can do as alias no 9 above has said) rather than receive a voucher?

Vouchers don't pay the mortgage or rent. Cash can be used for anything.

In the circumstances both can be paid tax free.

Seve OB

voucher is a prepaid Mastercard so basically cash

There is a lifetime limit on ex gratia amount an individual can receive…. So in theory this could become taxable at some point.

A voucher would never be taxable

or am I missing something?

chubba1984

Not all vouchers are tax free. They cannot be considered part of a salary sacrifice arrangement. In this case, if an amount is agreed for redundancy, it is part of the remuneration for the job and so considered part of salary and subject to the rules on termination of employment. Theoretically, here if a voucher was given, it would still go towards your lifetime ex gratia limits.

witchgirl26

https://www.boards.ie/discussion/comment/122335858#Comment_122335858

A voucher is taxable if someone has already received any gift from the employer in the year. So if they employer gave a voucher for a wedding, new baby etc. it would contribute towards the €1,000 tax free voucher amount. Also that can only be done in 2 vouchers max for the year. So yeah vouchers can be taxable.

As for it being a prepaid mastercard - that is still not the same as cash. You can't transfer it to your bank to pay off bills. It has the limitations of only being able to be used where cards are accepted.

Seve OB

https://www.boards.ie/discussion/comment/122338285#Comment_122338285

https://www.boards.ie/discussion/comment/122338364#Comment_122338364

I understand the tax rules around the voucher and what they can be used for.

this doesn't contravene them. nobody has received a voucher. they would normally be given at the end of the year anyway.

the company proposed as part of the wrap up to give staff their bonus vouchers as usual.

people reading into things rather than actually just answering the question🤷‍♂️

my question is simple

why is a tax advisor telling a company that it is more tax efficient for the employee to receive an ex gratia payment instead of a tax free voucher?

they have further said that staff are getting bad tax advice if they prefer to take a voucher instead of them putting in in ex gratia payment

I cannot understand their reasoning

witchgirl26

https://www.boards.ie/discussion/comment/122338618#Comment_122338618

Possibly because of the fact that if a company is closing, calling it a "bonus" with the gift card possibly calls a lot into question about the business.

An ex-gratia payment can be made in cash & doesn't have to be limited to €1,000. While that is what the company is saying it will be now, until it's paid over, it's not guaranteed.

Without knowing the full tax affairs of the business & how it's being wound up, it'd be hard to say for certain but on anything but again it comes back to cash versus voucher. The ex-gratia is cash. And at €1k, is tax free for the employee. The voucher is also tax free but is not cash.

Seve OB

ok put it like this

if someone has previously received ex gratia amounts of over €200k

Paying this as and ex gratia payment is actually taxable

similar someone could receive ex gratia amounts in the future that would make them hit the €200k limit and they would be charged tax on an extra thousand

Now tell me why ex gratia is better than voucher

chubba1984

Please see previous response

Seve OB

https://www.boards.ie/discussion/comment/122339347#Comment_122339347

what’s the reason because I must have missed it?

are you a tax expert or an accountant?

witchgirl26

https://www.boards.ie/discussion/comment/122339357#Comment_122339357

I am an accountant.

https://www.boards.ie/discussion/comment/122339297#Comment_122339297

An ex gratia over €200k previously you'd already have been taxed on. There is a basic exemption of €10,160 plus €765 for each complete year of service. You can get an increased exemption of €10k on top of the basic if you haven't received a lump sum in the last 10 years or you're not getting a lump sum pension payment now or in the future. Then you also have standard capital superannuation benefit tax relief that benefits those who have longer service and therefore possibly higher earnings as a result. It's on top of the other two benefits mentioned and again reduces the amount you pay tax on.

Now unless a lot of the employees in this company have a history of being made redundant and getting ex-gratia payments (which would be quite unusual), the €1k coming off the exemption is not really going to matter. And to be fair, the employer who is closing is under no obligation to look that far into the future to guess at people possibly getting another ex gratia payment in the future at somepoint, maybe. They are dealing with the now. They are under no obligation to help with employees future financial planning.

shmeee

https://www.boards.ie/discussion/comment/122339357#Comment_122339357

You said this is a pre paid MasterCard? Can this card be inserted into an ATM to withdraw cash? If so, it will not fall under the Small Benefit Exemption as a "voucher".

As Small Benefits are now reported to Revenue from 1st January 2024, employers are becoming more aware of what is a "small benefit" and what is not.

Tax & Duty Manual Part 05-01-01e if you want some light reading.

Seve OB

https://www.boards.ie/discussion/comment/122356622#Comment_122356622

no it cannot draw cash and is a perfectly legal small benefit

https://perxreward.com/benefits

shmeee

https://www.boards.ie/discussion/comment/122356820#Comment_122356820

Fair enough.

It's up to employer at end of the day so.

I don't see an issue with getting €1,000 cash tax free as part of ex-gratia payment. Its a drop in an ocean in lifetime limits.

JVince

https://www.boards.ie/discussion/comment/122338618#Comment_122338618

simple - they could get the voucher from a new employer.

Whilst not specifically stated, it is generally accepted by tax advisors that people may only receive €1000 in tax free gifts per year (they now have enhanced reporting)

As the exgratia is tax free anyway, this is the better option for the employee as generally the 1,000 small gift is given at Christmas

Seve OB

https://www.boards.ie/discussion/comment/122339479#Comment_122339479

I'm an accountant also and this is really more me being curious about the logic behind the advice. I didn't previously share this so maybe if I do, it will make a bit more sense. Company prepared calculations with statutory amounts, ex gratia amounts and a voucher amount. A tax advisor has been appointed for a number of reasons (I don't want to give too much information) but safe to say the redundancy issue is only a tiny thing they looked at.

They basically recommended to increase the ex-gratia amount and ditch the voucher. However, they do actually advise a voucher for some people, so this was really why I was very confused. Why some and not others? I don't have a direct line to the advisor so my questions have gone through someone else and may have been lost in translation.

I actually am pretty well versed in payroll also so I am aware of the different methods of calculating the ex-gratia amounts. In all the tax classes I ever attended, you would always be told to make sure you limit the tax exposure. The first thing you do when distributing money is take advantage of the tax free options. Furthermore, my wife is also an accountant who works in a tax practice and she is doesn't understand why the advice is to increase the ex gratia amount and ditch the voucher payment. Another accountant in the company is actually asking the same questions as I did.

I have since seen a screenshot of their workings where it seems that they have worked out the 10,160 + 765 PYS for an individual and advised to reduce the proposed ex gratia amount by about €50 (still to be paid but taxable) & leave the 1k as a voucher. But but they didn't even add the 10k despite this person having not received a lump sum ever in the past and will not be getting a lump sum pension payment (not even in the scheme), nor did they look at the SCSB. 🤷‍♂️. I'm beginning to think that redundancy might not be their specialist field 😆

Nobody here is hitting any limits (with the exception of the poorly calculated example above) and to be fair, are all quite far off them. We came to the conclusion that the logic is that because limits aren't being hit, pay it ex-gratia. Possibly the advisors don't understand the voucher that is being offered is so universal that it is as good as cash.

https://www.boards.ie/discussion/comment/122356842#Comment_122356842

In fairness, employer is very good at doing right by staff so are happy either way.

I do agree with you that it is a drop in the ocean and not really worth worrying about as it is likely to never be an issue for most involved here. But as I say, it does seem to go against the grain of all the tax classes I have ever taken (and I've been in more than my fair share 🤣) and this is really why I'm curious.

I know someone who was recently made redundant from a big firm with only about 6 years service and got a ridiculous amount of money, so you really never know!

At the end of the day, who want's to pay tax when they don't have to…..

shmeee

https://www.boards.ie/discussion/comment/122357047#Comment_122357047

You are making me wonder now also about this, if some are going to get a voucher and some aren't.

Ok, if employer has asked "what form you want the €1,000 in?". But hasn't as far as I can see.

It's an odd one, but hopefully employer comes back with an answer for you...... And us here!

witchgirl26

That is a strange one then. My only thought on the fact that some are being offered & others aren't (or well recommended) is down to individual circumstances that you mightn't have insight into. In the example you give - the pension doesn't have to be a corporate one, that person may have their own private pension which could pay out a lumpsum in the future & that information is available to the advisor but not to you.

In one sense I'd see it as a good thing if they are looking at it on an individual basis rather than a blanket amount but without seeing all the information they are privy too (which you shouldn't unless you're involved in it as that is a lot of personal information), it's hard to say whether they are recommending correctly.

Seve OB

I have much more insight into the individuals than this so called tax advisor, sure I prepared the figures for them and I know all about the personal circumstances of pretty much everyone involved and the individual who they made a balls of the calculation wasn’t aware of any of their workings and is equally perplexed 🤣

IMO they actually haven’t really looked at on an individual basis, but rather just very basically.

From 2 independent tax advisors today, I have further been informed that my logic of always paying the voucher first is absolutely the correct procedure to take. It really makes me wonder about this crowd when they stated “it does not appear to be sound advice they are getting” 🤷‍♂️ I would have some reservations about some of their other advice also but I think I’ll keep it to myself as it won’t directly affect me.

I’m not overly concerned as I will be involved in producing the final redundancy calculations when the time arises but I do know who I wouldn’t recommend for tax advice in the future 🤣

MARIA O

If business only has one employee and he's been with company over 30 years is entitled to redundancy? As employer has offered to rent him premises and let him take over business. It's a big expense and risk he's taking.

DFB-D

If the 1k is part of statutory or contract renumeration, it cannot be provided tax free under s112B. I am assuming not as the payment is being processed as non gratia.

The act mentions "qualifying incentives", which could also pose risk if tested, the company is terminating employments, would "incentives" benefit the business in such a situation?

Also bear in mind, the company is liable for PAYE not properly deducted.

I would say from the company's perspective, ex gratia payments are the preferable method as it matches the legislation more closely and hence pose the least risk.

But a tax advisor should not be blamed for the decisions of the directors…possibly the advisor outlined both proposals to the company.