Third party benefits

By Tolley
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The following Employment Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Third party benefits
  • Introduction
  • PAYE position of the provision of third party benefits
  • Taxed award scheme
  • Employee’s family members
  • Awards to self-employed individuals
  • Exemption for small gifts
  • Disguised remuneration ― third party benefits provided as part of arrangements

Introduction

Third party benefits are those provided to an employee by someone other than their employer. Viewed from the provider’s perspective, they are benefits provided to employees of another employer.

This is an area which can cause practical difficulties as there can be implications for the provider of the benefit, the employer of the employee who has received the benefit and the employee. Communication between the provider and the employer is often required in order to determine the correct tax, NIC and reporting requirements.

PAYE position of the provision of third party benefits
Cash (and similar) awards arranged by a third party or the employer

If a provider provides a third party’s employee with any of the following, the provider must deduct income tax under PAYE from the award and return the amounts to HMRC:

  • cash
  • vouchers exchangeable for cash
  • items which can be surrendered for cash

The employer must deduct and pay Class 1 NIC on the total value of the award made by the third party.

If the provider wishes to pay the amount to the employee without the employee suffering the tax, the provider will have to gross up the award by the tax rate of the employee, giving consideration for the rate of Class 1 NIC. See the Income tax paid on behalf of employee guidance note.

Non-cash awards arranged by a third party

If a provider arranges an award or benefit for a third party’s employee, then the provider can enter into a ‘taxed award scheme’ (TAS) (see below) and account for the tax due on the award. The employee will then not usually need to pay any tax on the

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