Income Tax (Earnings and Pensions) Act 2003 section 321

Suggestion awards

Section 321 provides a tax exemption for awards made to employees under employer suggestion schemes, provided the suggestion and the award meet certain conditions and the award does not exceed the permitted maximum.

• Employers must operate a formal suggestion scheme open to all employees, or a defined group of employees, on equal terms
• Awards are exempt from income tax only where the suggestion relates to the employer's activities, is beyond what the employee would normally be expected to suggest given their role, and is not made at a meeting held specifically for proposing suggestions
• Two types of award qualify: encouragement awards (recognising intrinsic merit or special effort) and financial benefit awards (for suggestions the employer adopts and expects to produce a financial gain through improved efficiency or effectiveness)
• The exemption applies only to the extent the award does not exceed the permitted maximum set out in section 322