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Preface:

My brother has now worked for several large banks that have given him vouchers for bonuses (or I believe they called them prizes) for reaching targets.

Yet I can find nothing about this being legal and can't believe that multinational banks would do anything that wasn't 100% legal!

I am fairly sure the vouchers couldn't be exchange for cash (bar selling them to someone I guess) as they where for Love2Shop but could be used in a lot of UK stores.

Question:

So what tax loophole are they using for this?

  • In the US there is a threshold that businesses can use to gift to employees. I Do not know what that threshold currently is but I believe the intent was that it would cover marketing type items like coffee mugs and calendars though there is no language limiting it to this type of item. I would guess there is something like that in the UK as well. – user4127 Dec 16 '11 at 18:17
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    "can't believe that multinational banks would do anything that wasn't 100% legal!" - Other way round: multinational banks have entire departments trying anything that isn't 100% illegal to avoid tax. – pjc50 Jan 27 '12 at 13:30
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These kind of prizes ("Incentive award schemes") are tax-free to the employee subject to certain conditions.

HMRC's pages about it are here: http://www.hmrc.gov.uk/manuals/eimanual/EIM11200.htm

Follow the first link to the page called "EIM11205 - Incentive award schemes: tax liability on incentive awards". The idea is that the employer pays the tax on the award by entering into a PSA (PAYE Settlement Agreement) so that there is no tax due from the employee.

  • They save both the employer and the employee NI payments, as the rules for NI (the 2nd uk income tax system) is not the same for income tax. – Ian Apr 28 '16 at 13:52

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