EIM11202 - Incentive award schemes: what are they?

Incentive awards are a way of rewarding employees and others with cash, goods or holidays rather than increases in pay. Schemes can vary from national promotions to a prize raffle held by a small firm. Rewards of goods or holidays will usually involve the use of a voucher. EIM16040 explains the meaning of ‘voucher’ for tax purposes.

Awards may be linked to sales performance, good timekeeping, safety or production records, or may involve participation in a lottery or prize draw. Schemes may be intended to benefit employees or the self-employed, or both.

Awards may be made by the employee’s direct employer or by a third party with an interest in the performance of the employee. For example, a car manufacturer is more likely to give an incentive award to a person employed by a dealership than the direct employer.

Sometimes employers or third parties may buy ready-made incentive schemes from a promoter of such schemes, instead of devising their own arrangements. Where this is done, the promoter will generally be responsible for organising the incentive scheme and providing the awards to the employees, but will have no responsibility for any tax due on the awards. See EIM11220 about promoters and tax on awards.