Personal bills

Employers may settle employees’ personal bills on their behalf. The cost to the employer is a taxable benefit in the hands of the employee and is chargeable to income tax as employment income.

The income tax reporting and National Insurance depends on which party makes the arrangements and pays the third party. There are three potential structures:

• •the employer makes the arrangements and pays the third party
• •the employee makes the arrangements but the employer pays the third party
• •the employee makes the arrangements and pays the third party, and the employer reimburses the employee

Each of these is discussed in more detail below.

Remember that, as with any other kind of employment reward, if the bill is paid by a third party rather than the employer, it is worth considering whether the disguised remuneration provisions in ITEPA 2003, ss 554A–554Z21 (Pt 7A) apply, as those rules have priority over most of the other rules for taxing employment income. See the Disguised remuneration ― overview guidance note. If there is no third party, or one of the exemptions from ITEPA 2003, ss 554A–554Z21 (Pt 7A) applies, then the normal rules, as described below, apply.

The amount paid by the employer is deductible for the purposes of calculating the adjusted profits for income tax (unincorporated businesses) or corporation tax (incorporated businesses) as the payment is considered to be employee remuneration.