Expenses and benefits—payroll requirements
Expenses and benefits—payroll requirements

The following Tax practice note provides comprehensive and up to date legal information covering:

  • Expenses and benefits—payroll requirements
  • How expenses and benefits are generally dealt with for payroll purposes
  • Voluntary payrolling of certain benefits-in-kind
  • Registration
  • Incorporating benefits in the payroll
  • Calculation of cash equivalent
  • Salary sacrifice arrangements (OpRAs)
  • Ongoing responsibilities
  • Statutory exemptions for deductible amounts
  • Trivial benefits exemption
  • More...

Coronavirus (COVID-19): HMRC has published guidance on how employers should treat certain expenses and benefits provided to employees during the coronavirus crisis for income tax purposes.

In addition to salary and other pay-related items such as overtime and bonuses, many employers will reimburse employees for work-related expenses and provide benefits for both incentivisation and reward. The tax treatment of non-cash earnings is discussed in Practice Note: How employment income is taxed—non-cash earnings or benefits.

This Practice Note sets out the payroll operation on expenses and benefits as it currently stands, following a simplification of the regime that took effect from 2016. This Practice Note also has a brief description of the aspects of the payroll regime for benefits that were abolished from April 2016 (see below).

How expenses and benefits are generally dealt with for payroll purposes

In practice, the distinction between an expense and a benefit may be blurred (an employer reimbursing a restaurant bill, for instance, could be either an expense or a benefit, depending on the circumstances) and so HMRC generally deals with both together.

Expenses and benefits may be dealt with in one of a number of ways:

  1. some payments, such as round sum allowances that are paid at a flat rate irrespective of any expenditure incurred by the employee, are treated as additional earnings and must be subject to Pay As You Earn

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