What’s so bad about cash? Reasons not to buy vouchers this Christmas

Thousands of workers across the State are likely to get a boost in the coming weeks in the form of a voucher from their employer, on which no tax is levied. The Small Benefit Exemption scheme is one of the few tax free perks left in the workplace, and the ceiling on the amount you can receive was doubled to €1,000 in the recent budget.

But why does the incentive have to be paid out in vouchers? And what’s so bad about vouchers?

Under Revenue rules, employers are allowed gift their employees a small tax free benefit each year. Up to now, the cap in value on this was €500. This was changed in Budget 2023 to €1,000, which can be paid in one or two vouchers. The changes have come into effect immediately which means that thousands of employees across the State are likely to benefit from the full €1,000 in the run-up to Christmas.

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And it is undoubtedly more beneficial to receive a voucher than pay tax on €1,000. Figures from Tax Assist show that someone earning €37,500 would need to get a bonus of €1,400 to get a “cash in hand” payment of €1,000, while the employer would lose a further €154.70 due to employer’s PRSI on the payment.

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Once an employer goes over €1,000, the full value of the voucher is subject to PAYE, PRSI and USC, so there is no benefit in offering €1,200 for example, to an employee. You have to stick to €1,000 or less for the scheme to work.

And, you can’t carry the benefit over. So if you don’t receive the full amount in one year, the balance cannot be used to earn more in vouchers the following year.

It’s more generous than similar schemes available in other countries, such as the UK, where HMRC’s trivial benefits allowance is just £50, according to payments platform EML Payments, elsewhere, in France, the Small Benefits Exemption is €169.

However, a strict stipulation of the Irish scheme is that the benefit must not be paid in cash, only by gift card.

So, why not cash?

According to a Revenue spokeswoman, the legislation is quite strict that the payment must be provided “in the form of a voucher or other non-cash item”. Moreover, this voucher “must not be capable of being exchanged in part or in full for cash” – so don’t try to sell on your voucher then, as many people like to do!

If these conditions aren’t met, benefit in kind will apply to the payment, much as it would do to other benefits.

The reason for not paying in cash, Revenue says, is that employees could look to sacrifice salary to get a tax-free payment. What this means, is that someone on €40,000, for example, will agree to be only paid €39,000, and will instead take the further €1,000 in the tax free cash payment, resulting in a greater after tax income. However, it also means a lower tax take for the exchequer.

Issues with vouchers

Many people like vouchers; although they don’t suit everyone. Unfortunately the only way to benefit from the €1,000 Small Benefit Exemption scheme is to take the benefit in voucher form.

While there might be no choice with respect to this particular scheme, anyone thinking of rushing out to buy vouchers more broadly for loved ones in the run-up to Christmas might consider the following. Yes, cash as a gift may seem a little colder but it is far more practical and will be spent – unlike vouchers which can lie unused around the house for years.

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A recent trawl of my own house to gather unused vouchers resulted in just €4 being available to spend from a bunch of vouchers which were initially worth about €60.

Here are just some of the reasons vouchers can be problematic.

They are often unused: How many households have numerous cards left gathering dust, with no one any the wiser as to what’s outstanding on the cards? For the organised among us, ensuring that the appropriate cards are spent in good time may not be an issue. For the rest of us however, repeatedly going to a shop only to remember after the fact that one of the gift cards lingering in a pile at home could have been used is a common issue.

Another issue arises when there is a small amount left on a card – less than €5 for example. Such cards are often left unspent to the benefit of the company that originally sold them. Financial statements published in 2021 for the company behind One4All cards in Ireland and Britain, for example, indicated that One4all customers had left €219 million unused on cards as of the end of 2019.

They can cost you – and the recipient: Take a One4All card. This popular card can be used in more than 8,500 stores nationwide. However, the gift card costs €2 to buy, plus €0.50 per extra card if you buy through a post office. In other outlets it’s €2 per card.

If you don’t spend the cards, you could lose money. With One4All for example, once 12 months has elapsed, a monthly charge of €1.45 applies to a card (€17.40 a year). That can eat away, if not entirely remove, any outstanding balance. While the cards do last for five years, €50 gifted in 2022 will be worth €0 by 2027, if nothing has been spent on it.

Similarly, with a Dundrum Town Centre card, a monthly service fee of €3 is automatically deducted from the remaining balance after a year. So if you don’t spend, and spend relatively fast, you will lose some of your gift.

A Me2You card, which is an initiative of Retail Excellence Ireland, charges €1.40 a month once the card is 13 months old.

You can forget/lose them: If you are gifted cash, it’s likely that before it gets to burn a hole in your proverbial pocket, you will spend it. With gift cards, it’s easy to lose or forget about them. If the card is for a substantial amount, it can make sense then to take a picture of the code on the card – Me2You will replace lost cards if you have the code, as will One4All, although a €5 charge applies for the latter.

It can be tricky to check your balance: Take the Dundrum Town Centre card. While the card covers shops across the centre, a quirk is that these shops can’t tell you how much is left on the card. So, unless you have enough to cover a purchase, you may find that you have to end up paying with your own funds until you find out how much is on the card.

To find out how much of your “easy to use” gift you actually have, you need to visit a kiosk in the centre or ring (01) 5133656.

Many cards now allow you to check the balance online so check this is an option before purchasing, particularly if it’s for a significant amount.

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They can be risky: In a precarious retail environment, if you do intend buying vouchers this Christmas, a good approach is to hedge your bets by opting for one that covers multiple outlets, rather than a single store/restaurant etc. Remember when House of Fraser closed in Ireland and all the uncertainty that ensued surrounding gift cards? Better to go for a card such as a National Book Token, which can be used in hundreds of book shops across Ireland and Britain, rather than a voucher for an individual book shop for instance.

Expiry dates: Another issue with vouchers is that they often had short expiry dates, which meant that by the time you actually got to use it, the voucher had expired. Legislation introduced a few years ago has helped this problem, by ensuring that a card must either have no expiry date, or must be valid for at least five years. Again however, you’d be surprised how many of those cards can go unspent before expiring.