Employment Tax

Third party benefits

Produced by Tolley
  • 15 Dec 2021 14:11

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

  • Third party benefits
  • Introduction
  • PAYE position of the provision of third party benefits
  • Cash (and similar) awards arranged by a third party or the employer
  • Non-cash awards arranged by a third party
  • Non-cash awards arranged by the employer
  • Taxed award scheme
  • Employee’s family members
  • Awards to self-employed individuals
  • Exemption for small gifts
  • More...

Third party benefits

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. No charge to tax arises on the individual as long as the third party is not seeking to reward the individual in some way for past or future services in the course of their employment. This exemption is derived from ITEPA 2003, s 265. However, often a benefit is provided as a reward, for example this is common for people in sales who receive rewards from manufacturers. Below, the treatment is set out where this is a reward and therefore tax consequences.

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:

  1. cash

  2. vouchers exchangeable for cash

  3. 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

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