Contractual and pecuniary liabilities

By Tolley

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

  • Contractual and pecuniary liabilities
  • Payment of employee’s tax
  • PAYE treatment of pecuniary liabilities
  • Tax treatment of pecuniary liabilities
  • National insurance (NIC) treatment of pecuniary liabilities

The definition of ‘earnings’ for the purposes of tax includes anything that is of direct monetary value to the employee. If an employer pays an employee’s bill or meets some other kind of liability that the employee is obliged to pay themselves (often referred to as meeting the employee’s pecuniary liability), this is of direct monetary value to the employee. This is on the basis that the employee is assessed on the money that is used to settle their liability, and not as a benefit in kind on what this liability relates to. For example, where an employer settles an employee’s phone bill, the benefit is not the provision of a phone line / phone calls, it is the amount of money used to settle that bill. As such, it is taxable under ITEPA 2003, s 62.

The payment made by the employer can be a one-off occurrence, eg settling an outstanding parking fine to prevent further proceedings being taken against the employee, or it can be a contractual agreement negotiated as part of the employment package, eg the employer may take over responsibility for paying the employee’s premiums on their existing health insurance policy. In either case, the amount paid by the employer is of direct monetary value to the employee. The employee is taxed on the full amount of the personal liability settled by the employer.

One type of pecuniary liability that an employer may meet is council tax. In most circumstances, if the employer pays the council tax to the local authority on a property occupied by the employ

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