Income and deductions

By Tolley in association with Vince Ashall

The following Employment Tax guidance note by Tolley in association with Vince Ashall provides comprehensive and up to date tax information covering:

  • Income and deductions
  • Taxable pay
  • Pension contributions
  • Payroll giving
  • Employee share schemes
  • National Insurance
  • Deductions

Under PAYE, income from employment is subject to deductions of income tax and National Insurance in addition to other deductions. Income from employment includes basic pay, overtime, bonus payments, shift payments, regional payments such as London Weighting, tips, gratuities, etc. This list is not exhaustive. Also included as income is incidental benefit of any kind obtained by the employee if it is money or money’s worth, or if the employer has registered for voluntary payroll of benefits. See the Non-cash earnings ― overview and Voluntary payrolling of benefits in kind guidance notes.

The total of the individual items of pay that make up employment income is normally called ‘gross pay’.

See Example 1.

Benefits in kind (BIKs) are usually dealt with under the Benefits Code and, unless payrolled, are reported at year-end under the P11D  procedures. See the Voluntary payrolling of benefits in kind and Year end benefit reporting guidance notes.

Taxable pay

The value of gross pay as defined in the first paragraph above is normally the same value as taxable pay. However, an employee is allowed to offset certain payments that are made out of gross pay against the tax liability due on that gross pay.

The more common payments that can be offset such as pension contributions, payroll giving and share incentive payments (see below), are dealt with by the employer who automatically reduces the employee’s taxable pay through the payroll.

There are other payments that an employer may make that are taxable, but for which the employee could claim a corresponding offset. This includes, for example, subscriptions to professional bodies and expenses. To ease the administrative burden for all concerned, prior to 6 April 2016, the employer could apply to HMRC for a dispensation. From 6 April 2016, the dispensation regime has been replaced by a statutory exemption for reimbursed benefits and expenses. From

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