T26/W6 - Normally any payment you make to your employee is taxable as it is connected with their job. However, an incentive reward scheme for people to give up smoking can be made tax and NI free.

Your employees have made a pact to give up smoking, which is great news for you as it means you will lose less working time to smoking breaks and sick days, but only if you can encourage your staff to kick the habit for good. You decide to offer a £50 prize for giving up smoking for three months, and a further £50 if they don’t smoke for another three months. You are convinced this will encourage them to give up, but will it be taxed?

Normally any payment you make to your employee is taxable as it is connected with their job.

Tip: make it clear in the "Notice" you issue about the non-smoking reward that the money will be paid to anyone you wish to offer the incentive to. Also be clear that internal promotion within the company is not dependent on being a non-smoker, and smokers and non-smokers alike will continue to be treated equally. If these conditions are satisfied the smoke free reward should be income tax and NI free.