An employer can give an employee a non cash award to mark at least 20 years of service free of tax and National Insurance, provided its cost is no more than £50 for each year of service and the employee has not received another long service award from the same employer in the previous 10 years. Cash never qualifies, and anything above the limit is taxable. The rule is in section 323 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

What does the long service award exemption actually cover?

Gifts from an employer to mark long service are normally taxable, either as earnings under section 62 ITEPA 2003 or as a benefit under the benefits code. HMRC’s Employment Income Manual at EIM01500 explains that section 323 replaced the old Extra Statutory Concession A22 from the 2003 to 2004 tax year and turned it into a statutory exemption.

Section 323 removes the income tax charge on a “long service award” to the extent that its chargeable amount does not exceed the “permitted maximum”. The section defines a long service award as an award made to an employee to mark not less than 20 years’ service with the same employer, and sets the permitted maximum at £50 for each year of service the award is made for. The National Insurance treatment follows the tax treatment: HMRC’s National Insurance Manual at NIM02218 confirms that a qualifying award is left out of earnings for Class 1 purposes.

There are three conditions, and all must be met:

  • the award marks a period of at least 20 years of service with the same employer
  • the award is in a qualifying form, which broadly means something other than money
  • no other award marking a period of service with the same employer has been made to the employee in the 10 years ending on the date of this award

What does the 20 year service condition mean in practice?

The 20 years must be with the same employer, but section 323(5) widens that phrase. Service with two or more employers counts as service with the same employer if each is a successor or predecessor of the others, or if one is a company belonging (or which has belonged) to the same group as the others or a predecessor or successor of them. A group for this purpose is a body corporate and its 51% subsidiaries (EIM01504).

That helps employees who have moved between companies in a corporate group or who transferred with a business on a sale. It does not help someone who worked 12 years for one unrelated employer and 8 years for another: the clock restarts with the new employer. Employers should check personnel records carefully, because an award given at what was thought to be 20 years but was actually 19 does not qualify at all.

How much can the award be worth?

The limit is £50 for each year of service the award marks. HMRC’s employer guidance gives the example that a non cash award of up to £1,000 can be given for 20 years of service. For 25 years the limit would be £1,250, and for 30 years £1,500. Before 13 June 2003 the figure was £20 a year (EIM01501).

The value compared with the limit is the “chargeable amount”, meaning the amount that would be taxed if there were no exemption. EIM01501 says that for most employees this will be the cost to the employer, so a watch bought at a trade discount is measured at what the employer paid, not the shop price.

If the cost goes above the limit, only the excess is taxable (EIM01501). The award does not lose its exemption entirely.

Which kinds of award qualify?

Section 323(3) lists the permitted forms. The award must be:

  • tangible moveable property, such as a watch, a clock, jewellery or a piece of furniture
  • shares in the employing company or in a company in the same group
  • any other benefit, except a payment, a cash voucher, a credit token, securities, other shares, or an interest in or rights over securities or shares

EIM01502 notes that excluding payments and cash vouchers rules out cash, cheques, National Savings Certificates and premium bonds. Subject to the monetary limit, HMRC says most non cash awards are likely to qualify.

HMRC’s guide also warns that long service awards provided through a salary sacrifice arrangement must be reported. The exemption is not one of the few that survive the optional remuneration rules, so an award bought with sacrificed salary is taxed on the higher of the salary given up and the cost of the award.

How does the ten year gap between awards work?

Section 323(4) switches off the exemption for a later award if another award marking a period of service with the same employer was made in the 10 years ending on the date of the later award. EIM01503 sets out how HMRC applies it:

  • each award is tested on its own, so the limit at 30 years is £1,500 regardless of what was exempted at 20 years
  • an employee who receives awards at 20 and 30 years can have both exempt, because there is a full 10 years between them
  • an employee who receives awards at 25 and 30 years gets no exemption on the 30 year award
  • every earlier award for service with the same employer counts for the 10 year test, whether it was taxed or exempt

The last point catches employers who give a small taxed gift at 15 or 25 years and then expect a later milestone award to be exempt. A 15 year award blocks exemption for anything given until the 25 year point. A scheme built around 20, 30 and 40 year milestones keeps every award outside the 10 year window.

A worked example

Illustration only. Priya has worked for a manufacturing company for 20 years. Her employer buys her a watch costing £1,150 and has never given her a long service award before.

  • Permitted maximum: 20 years at £50 is £1,000.
  • Chargeable amount: £1,150, the cost to the employer.
  • Exempt: £1,000. Taxable: £150.

The employer reports the award on form P11D and pays Class 1A National Insurance on the £150 above the limit, which is how HMRC’s guide says non cash awards that exceed the limit are handled. Ten years later Priya receives a framed print costing £1,400 for 30 years of service. The limit is now £1,500, the earlier watch was more than 10 years before, so the whole award is exempt.

Had the company given Priya a £100 cash payment at 25 years, that payment would have been taxed through payroll, and the 30 year award would get no exemption because an award was made within the previous 10 years.

What must the employer report and pay when the exemption does not apply?

HMRC’s guide on long service awards sets out the treatment by type of award:

Type of award Conditions met (20 years, no award in 10 years) Conditions not met
Cash Always earnings: PAYE and Class 1 National Insurance through payroll Same
Non cash award Report on P11D and pay Class 1A on the value over £50 per year of service Report on P11D and pay Class 1A on the full value
Readily convertible assets, such as listed shares Add the value above £50 per year of service to earnings and operate PAYE and Class 1 Add the full value to earnings and operate PAYE and Class 1

P11D forms are due by 6 July after the end of the tax year, and Class 1A is due by 22 July (19 July if paying by cheque). Where an employer would rather the employee did not face a tax bill, EIM01500 notes that the employer may be prepared to pay the tax on a non cash award that fails the conditions or exceeds the limit under a PAYE Settlement Agreement. Cash awards should go through PAYE instead.

What are the common mistakes?

  • Giving gift cards that can be exchanged for cash, or paying cash “in lieu”, which fall outside section 323(3) altogether.
  • Counting service with a previous unconnected employer towards the 20 years.
  • Forgetting a smaller earlier award, which still blocks the exemption for 10 years even if it was taxed.
  • Measuring the award at retail price instead of what the employer actually paid.
  • Running awards through a salary sacrifice scheme, which brings them back into charge.

Keeping the scheme rules, the employee’s start date and the invoice for each award makes the exemption easy to demonstrate if the question comes up in an HMRC employer compliance check. For smaller gifts that do not mark 20 years of service, the separate trivial benefits exemption in section 323A applies instead, with its own £50 cost limit per benefit and a rule that the benefit must not be cash or a cash voucher.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.