In the past different criteria were used to determine whether an award made under a staff suggestion scheme was taxable or liable for NICs.
Up to and including the 2002/2003 tax year the tax position was
governed by extra statutory concession (ESC) A57. This exempted
certain staff suggestion awards from a charge to tax.
For 2003/04 onwards, the concession was replaced by a
statutory exemption provided at section 321 ITEPA 2003. The
conditions for exemption remain much as they were under the terms
of the concession, but there are more detailed rules that apply
when an employer makes more than one award for the same suggestion
- see EIM06600 onwards for detailed guidance on the tax
position.
With effect from 6 April 2001 the NICs position was aligned with
the tax position which existed by virtue of ESC A57 and now exists
by virtue of section 321 ITEPA 2003. From that date awards under
staff suggestion schemes are therefore excluded from NICs only if
they satisfy the tax criteria. Prior to that date awards under
staff suggestions schemes were not generally held to be earnings
for NICs purposes unless the making of suggestions was covered by
the duties of the employment.
See EIM06600 onwards for guidance on the application of
section 321 ITEPA 2003 and see SE06600 for guidance on the
application of ESC A57.
In the event that a staff suggestion award is made in more
than one form – for example, a holiday is provided alongside
a cash payment – the various elements of the award must be
added together to determine whether or not the monetary limits
imposed by the tax exemption are satisfied. If the limits are
exceeded a liability for NICs will arise in respect of the excess
amount.
Example
An employee receives an award comprising
Even though the award satisfies all other requirements of the tax exception, it exceeds the maximum of £5,000 and a liability for NICs will arise in respect of the £500 excess.
