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HMRC internal manual

Employment Income Manual

Employment income: long service testimonial awards: general

Section 323 ITEPA 2003

Payments to employees by employers to mark long service are taxable as earnings within section 62 ITEPA 2003 (see EIM00520 onwards and Weston v Hearn (25TC425)), or as benefits within section 201 (see EIM21001 onwards).

For tax year 2002 to 2003 and earlier tax years, some long service awards were exempt from tax under Extra-Statutory Concession A22 (see SE01500).

For tax year 2003 to 2004 onwards, the concession has been replaced by a statutory exemption in section 323 ITEPA 2003. The conditions for exemption are as follows:

  • the award must be made to mark a period of not less than 20 years service with the same employer (see EIM01504)
  • it must be in a form that satisfies the condition in section 323(3) (broadly, it must be something other than money) (see EIM01502)
  • the taxable value of the award (before applying the exemption) must not be more than £50 for each year of service (see EIM01501) (£20 per year of service if the award was made on or before 12 June 2003)

As regards multiple awards, see EIM01503.

If a non-cash award fails to satisfy the conditions for the exemption, or exceeds the £50 per year of service limit, the employer may be prepared to pay the tax due under a PAYE Settlement Agreement. Cash awards do not qualify for exemption at all, and the employer should operate PAYE.