Long service awards: how does the tax exemption work?
TL;DR, the essentials
- A non-cash long service award is exempt from income tax and National Insurance only if three conditions are all met.
- The employee must have completed at least 20 years of service with the employer.
- The award must be worth no more than £50 per year of service, so £1,000 at 20 years and £1,250 at 25 years.
- No similar tax-free award may have been given to the same person in the previous 10 years.
- Cash awards are always taxable as earnings, whatever the length of service, and any excess over the exempt amount is taxed as employment income.
Rewarding long service is common, and getting it wrong on the payroll is just as common. HMRC exempts certain long service awards from income tax and National Insurance, but only under three strict conditions, and cash never qualifies. Here is exactly how the exemption works, how to calculate the tax-free ceiling, and what to do when an award goes over it.
What counts as a long service award?
A long service award is a benefit given to an employee to mark a milestone of continuous service with the same employer. Typical forms are a physical gift, a voucher, an experience, or an extra day of leave. What matters for tax is not the occasion but the form and value of the award, and the employee’s length of service at the time it is given.
Good to know
Figures are indicative for July 2026 and reflect the rules for England, Scotland and Wales. This is general information, not legal advice: check GOV.UK, Acas or a qualified adviser for your situation. The rules described here follow the GOV.UK guidance on expenses and benefits for long service awards.
What are the three conditions for the exemption?
All three must be satisfied. Miss one and the whole award becomes taxable.
At least 20 years of service
The employee must have completed a minimum of 20 years with the employer. Awards at 5, 10 or 15 years are outside the exemption entirely, however modest.
No more than £50 per year of service
The value ceiling scales with tenure. It is the total value of the award that is compared with the ceiling, including VAT.
Nothing similar in the previous 10 years
If a tax-free long service award was already given to that person in the last decade, a second one does not qualify.
How do you calculate the tax-free limit?
Multiply the years of service by £50. That gives the maximum value that can be given free of income tax and National Insurance.
| Years of service | Maximum tax-free value | Qualifies? |
|---|---|---|
| 10 years | — | No, below the 20-year threshold |
| 20 years | £1,000 | Yes, if non-cash |
| 25 years | £1,250 | Yes, if none in the last 10 years |
| 40 years | £2,000 | Yes, subject to the same conditions |
Indicative figures based on the GOV.UK long service award guidance, checked July 2026.
Why is cash treated differently?
Because HMRC treats a cash award as earnings, full stop. A £500 bonus for 25 years of service is pay: it goes through PAYE, attracts income tax and National Insurance, and appears on the payslip like any other payment. The intention behind it makes no difference, and neither does the length of service.
The same logic catches anything that behaves like cash. Vouchers that can be exchanged for cash are treated as cash. Vouchers that can only be exchanged for goods or services fall on the non-cash side, and can sit inside the exemption. If in doubt, the test is whether the employee can convert the award into money.
The exemption rewards the gesture, not the payment. The moment an award can be turned into cash, it becomes pay.
What happens if the award is worth more than the limit?
Only the excess is taxed, not the whole award, provided the other two conditions are met. A £1,400 gift for 25 years of service exceeds the £1,250 ceiling by £150, and that £150 is treated as employment income, subject to income tax and employee National Insurance, reported through the usual expenses and benefits route.
If the 20-year or 10-year conditions are not met, there is no exemption to apply and the full value is taxable. Payroll teams that handle these awards manually tend to get this backwards, which is one more reason to run them through the same system as the rest of pay. Our explainer on gross versus net salary covers how taxable benefits land on the payslip.
How do you design a scheme that actually works?
Three practical points. First, decide whether the scheme exists for tax efficiency or for recognition, because the 20-year threshold means most milestones will be taxable either way, and that is not a reason to skip them. Second, keep a record of every award with its date and value, since the 10-year rule cannot be applied without one. Third, be transparent with employees about whether an award is taxable, so nobody is surprised by a smaller payslip the following month.
On the retention question behind all this, our guide to employee retention strategies looks at what actually keeps people, and a long service gift at year twenty is rarely the deciding factor.
Handle taxable benefits cleanly
Our comparison ranks the HR and payroll platforms that report benefits in kind without manual spreadsheets.
Next step
Want awards and benefits handled inside payroll? See our best HR software 2026 comparison, or our payroll software picks.
Frequently asked questions
Are long service awards taxable in the UK?
Not always. A non-cash award is exempt from income tax and National Insurance if the employee has at least 20 years of service, the value does not exceed £50 per year of service, and no similar tax-free award was given in the previous 10 years. Otherwise it is taxable.
How much can a 25-year long service award be worth tax free?
Up to £1,250, that is 25 years multiplied by £50, provided the award is non-cash and no similar tax-free award has been given to that employee in the last decade.
Is a cash long service bonus tax free?
No. HMRC treats cash awards as earnings regardless of length of service or intention, so they go through PAYE with income tax and National Insurance. Only non-cash awards can qualify for the exemption.
What if the award is worth more than the limit?
Only the excess is taxable, provided the 20-year and 10-year conditions are met. That excess is treated as employment income and reported through the usual expenses and benefits process.