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An Employer's Guide to Payroll

Payroll Guide Contents > Employment benefits

5. Employment benefits

Benefits in Kind payable through the payroll

Where an employer reimburses a private liability of an employee, say for example a legal bill or a school fee, the employee is treated as being in receipt of (net) earnings equal to the sum involved. He becomes liable to income tax and employee’s NI on the benefit and the employer to the employer’s NI, as a result the (grossed-up) payment must be put through the payroll and PAYE operated (logically enough since the employee would otherwise have to meet his private liability from his or her net pay).

But if the company pays the bill directly to the supplier, payroll cannot be operated, in which case income tax must be accounted for through the P11D Benefits-in-Kind procedure and the Employer's and Employee's NI through the payroll (but without PAYE tax being deducted).

Finally, if the employer contracts directly with the supplier for the benefit to be provided to the employee, employee and employer contributions are not due, the benefit should not be subjected to PAYE but rather it should be returned through the P11D Return of  Benefits-in-Kind mechanism that enables the employee to be taxed and the employer to be charged Class1A NI.

A failure to account for such items correctly is a common source of PAYE settlements following PAYE inspections.

Tips ingathered and distributed by the employer are treated as earnings and must normally be subjected to PAYE through the payroll in the normal way. Failure to do so can result in a (very) expensive settlement for the employer.

Where the tips are kept separately by an employee on behalf of his fellows and distributed to them by him, a ‘tronc’ is said to be established with the employee being the ‘troncmaster’; who is then responsible for taxing the tips through a separate PAYE reference (although the Revenue may permit actual payment of the taxed tips to be made through the employer’s payroll for convenience). NI contributions are not due.

Very particular care must be taken by the employer and the troncmaster if problems are to be avoided.

Disclaimer

While we hope the above has been found to be useful it is intended only as a general guide, may not reflect the very latest developments in law, and cannot be a substitute for professional advice. We cannot accept any responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this guide.