Long Service Awards: Tax Rules for Employers 2026/27
Employers can reward long-serving staff with a tax-free award — a watch, jewellery, or another tangible item — provided a few specific conditions are met. This guide explains how the long service award exemption works in 2026/27 and where it does not apply.
How the Exemption Works
A long service award can be given tax-free to an employee provided it is not cash or a cash voucher, the employee has completed a minimum number of years of service (typically at least twenty years), and the value of the award does not exceed a set amount for each year of service, up to an overall maximum.
The award is meant to mark a genuine milestone rather than being a disguised form of regular pay, so awards must be reasonably infrequent — a business cannot simply repeat an award every year and expect it to remain tax-free under this specific exemption.
What Qualifies and What Does Not
Typical qualifying awards include tangible items such as jewellery, a watch, or a similar physical gift, and in some circumstances can include shares in the employing company. Vouchers exchangeable only for cash, and cash itself, never qualify for this specific tax-free treatment, however long the employee’s service.
If the item given exceeds the value cap for the years of service completed, the excess amount above the tax-free limit is generally treated as a taxable benefit, not the whole award — so exceeding the cap does not necessarily make the entire gift taxable.
Repeat Awards for the Same Employee
A further tax-free award can generally be given to the same employee for a later milestone, provided a minimum gap (commonly around ten years) has passed since their last long service award under this exemption, reinforcing that the relief is intended for genuinely infrequent recognition rather than a routine annual perk.
Employers should keep a simple record of when each qualifying award was given and its value, both to support the tax-free treatment if queried and to plan future awards so they continue to meet the minimum-gap condition.
Frequently Asked Questions
Can a cash bonus for long service ever be tax-free?
No — cash, and vouchers that can be exchanged only for cash, are always taxable as normal earnings, however long the employee has served. The tax-free treatment only applies to non-cash, tangible awards that meet the specific conditions of the exemption.
How many years of service are needed to qualify?
A minimum period of continuous service, commonly at least twenty years, is generally required before a long service award can qualify for tax-free treatment — shorter periods of service do not meet the conditions for this specific exemption.
What happens if the award is worth more than the tax-free limit?
Only the amount above the tax-free cap for the relevant years of service is generally treated as a taxable benefit, rather than the entire value of the gift becoming taxable, so employers can still give a more generous gift while keeping part of it tax-free.
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Can the same employee receive more than one tax-free long service award?
Yes, but generally only if a minimum gap (commonly around ten years) has passed since the employee’s last qualifying award, reflecting that the exemption is designed for occasional, genuine milestones rather than frequent recurring gifts.
Do shares in the company qualify as a long service award?
In some circumstances, shares in the employing company can qualify as a tax-free long service award, alongside more traditional tangible gifts such as jewellery or a watch, provided the other conditions of the exemption are met.
Does the employer need to report a qualifying long service award to HMRC?
Where an award falls fully within the tax-free exemption, it generally does not need to be reported as a taxable benefit, but employers should keep records of the award to demonstrate the conditions were met if the position is ever queried.
Does the long service award exemption cover National Insurance as well as income tax?
Yes — where an award qualifies for the tax-free treatment, it is also disregarded for employer and employee National Insurance purposes, so a properly structured award does not create a Class 1 or Class 1A NIC liability.
Can a director receive a tax-free long service award?
Directors can qualify on the same basis as other employees, provided the same conditions are met — a minimum period of continuous service, a non-cash award, and compliance with the per-year value cap and minimum-gap rule for repeat awards.
What happens if an employee leaves shortly after receiving the award?
The exemption is assessed against the conditions in place at the time the award is made, so an employee leaving afterwards does not retrospectively affect the tax-free treatment already given, provided the qualifying conditions were genuinely met.
Is a long service award the same as a staff suggestion scheme award?
No — they are separate exemptions with their own conditions and value limits. A long service award recognises years of continuous service, while a staff suggestion scheme reward is a distinct relief for money-saving or efficiency ideas, and the two should not be confused when working out what is tax-free.
Disclaimer: This guide reflects UK rules as they generally apply in 2026/27. This guide is for general information only and is not professional advice. Consult a qualified adviser and refer to gov.uk for current official guidance before relying on any treatment.
