Establishing correct treatment and method(s) by which tax and NIC are collected
This guidance document is intended to provide an alphabetical summary list of the likely treatment of many common payments or benefits which may be provided to employees. This treatment may have been established by historical case law, however most is covered by specific legislation such as the Income Tax (Earnings and Pensions) Act 2003 (as updated and amended). The different Classes of NIC referred to below are as identified in the Social Security Contributions and Benefits Act 1992.
Additional published official guidance, includes HMRC’s Employment Income Manual and CWG2 further guide to PAYE and National Insurance contributions. Expenses and benefits for directors and employees ― tax guide 480 and the 490 Employee travel guide may also each be used to identify HMRC’s likely views on particular expense and benefit items, and how those items should be valued if they are taxable. However the general principle is that benefits are valued at cost to employer (or provider), including any VAT incurred whether or not input tax is recovered.
The specific rules applying to optional remuneration arrangements should be considered if a benefit is provided as part of a salary sacrifice or flexible benefits agreement. Alternative considerations or exemptions may also apply if the employee is a non UK-national or is outside the UK NIC (social security) system. See the Optional remuneration arrangements and Classes of NIC and who pays them guidance notes for more information in these areas.
As well as establishing the likely tax and NIC treatment, it is necessary to understand the method by which any tax or NIC is likely to be collected. A summary is provided below the following table.
For additional reading, please refer to Simon’s Taxes E4.6 and E4.7.
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