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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 2002/03 and earlier years, some long service awards were exempt from tax under Extra- Statutory Concession A22 (see SE01500).

For 2003/04 onwards, the concession has been replaced by a statutory exemption in Section 323 ITEPA 2003.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) and
  • it must be in a form that satisfies the condition in Section 323(3) (broadly, it must be something other than money) (see EIM01502) and
  • 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.