Third party liability for PAYE

Produced by Tolley in association with Vince Ashall

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

  • Third party liability for PAYE
  • Taxed award scheme (TAS)
  • Troncs
  • Disguised remuneration
  • Employment intermediaries
  • Managed service companies
  • Off-payroll working (IR35)

Third party liability for PAYE

PAYE is an acronym for pay as you earn. Despite this label, the employee (‘you’ in the title) has little involvement in the PAYE process, other than suffering the income tax and NIC deduction from their wages or salary. In the majority of cases, it is the employer who administers PAYE on their employees’ earnings and is responsible for paying over the tax and NIC deducted to HMRC. However, there are some circumstances where this is not the case and tax and / or NIC has to be accounted for by a third party.

Taxed award scheme (TAS)

Where employees receive incentive ‘awards’ from a third party, tax and NIC may be due on the value of the award. If the employer is not directly involved in the provision of the award by the third party, then the third party may opt to enter into a TAS. The agreement is between the third party and HMRC. Where a TAS has been entered into, the third party can choose to account for tax at either the basic rate or the higher rate. The tax liability needs to be calculated on the grossed up value of the award.

If no TAS has been agreed, the employee will still be responsible for the underpaid tax. A higher rate or additional rate taxpayer may still have a responsibility for underpaid tax where the third party has opted to deduct tax on the award at basic rate.

Class 1A NIC is also due on the grossed up value of the award and on the amount of tax due under the TAS.

Where the award is cash, including cash vouchers or other items that can be converted to cash (eg premium bonds), then Class 1 NIC is due rather than Class 1A. This is also the case where the type of award would normally attract Class 1 NIC.

In cases where a Class 1 liability is due, this must be

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