The following Employment Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:
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.
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:
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.
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 award.
In addition, the provider of the award will be required to account for Class 1A NIC for any benefits.
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