Employer Further Guide to PAYE and NICs - HM Revenue & Customs

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Payments paid ‘free of tax or NICs’ 27 All of an employee’s earnings paid ‘free of tax’ If you enter into an arrangement with an employee that all of his or her earnings are to be paid ‘free of tax’, you should note that: • it is your responsibility to make sure that your employee understands and agrees with the terms under which the payment is made 'free of tax’ • payments made 'free of tax’ can increase your costs • there are extra PAYE duties involved. For example, the tax due is worked out by reference to the ‘true gross pay’, not the amount your employee is actually paid. It is your responsibility to work out the ‘true gross pay’ figure. Where you have such an arrangement with any employee(s), contact us for a package containing: • forms P11(FOT) • special ‘free of tax’ (FOT) Tax Tables, Tables G • a leaflet FOT 1 which will help you work out the ‘true gross pay’ figure and show you how to complete form P11(FOT). 28 All of an employee’s earnings paid ‘free of tax and NICs’ If you enter into an arrangement with an employee that all of his or her earnings are to be paid ‘free of tax and NICs’, you should contact us for advice. 29 Part of an employee’s earnings paid ‘free of tax’ If you enter into an agreement with an employee that only part of his or her earnings are to be paid ‘free of tax’, the figure to enter on form P11 to calculate the PAYE and NICs due is the total of: • the ‘true gross pay’ of the ‘free of tax’ element of the earnings, and • the actual gross pay not within the ‘free of tax’ agreement. To work out the ‘true gross pay’ of the ‘free of tax’ element, you should use the following formula: ‘Free of Tax’ element of pay x 100 (100 - employee’s tax rate figure)* *The tax rate figure depends on which tax table you use for the employee. If you use: • Table B the figure is 20 – basic rate • Table D the figure is 40 – higher rate or 50 – additional rate Example You enter into an agreement to pay an employee a wage of £150 and £15 ‘free of tax’ towards travelling expenses. The employee is a Table B employee. The figure to use to calculate the PAYE and NICs due is the total of the ‘true gross pay’ of the ‘free of tax’ element £15 x 100 (100 - 20) = £18.75 and the actual gross pay not within the ‘free of tax’ agreement = £150.00 Figure to be entered on form P11 to calculate PAYE and NICs £168.75 30 Part of an employee’s earnings paid ‘free of tax and NICs’ If you enter into an agreement with an employee that only part of his or her earnings are to be paid ‘free of tax and NICs’, you should contact us for advice on how to work out the amount of PAYE and NICs due. 31 Agreement to pay an employee’s share of NICs You should contact us if you decide to pay the employee’s share of NICs on his or her behalf. That is, you agree to pay the employee’s contributions yourself rather than deduct them from the employee’s pay. Payroll Giving – An easy way to give Payroll Giving is a voluntary scheme that allows employees to give money to any UK-registered charity direct from their pay and get tax relief on the donations they make. Employers who currently offer the scheme say they find it easy to run and valuable for promoting good employee and community relations. You can get tax relief for the costs of administering the scheme. Agencies usually recover their costs by making a deduction from the donations they handle but, if you choose to fund any of the agency’s costs, or match your employees’ donations, you can get relief for that as well. If you already offer Payroll Giving, remember that employees are entitled only to tax relief, not relief from NICs. When completing form P11, therefore, you: • deduct the amount of the authorised donation from the employees’ gross pay for PAYE purposes • do not deduct the amount of the authorised donation from the employee’s gross pay for NICs purposes. To find out more you can: • go to Payroll Giving pages at www.hmrc.gov.uk/ businesses/giving/payroll-giving.htm • phone the Charities Helpline on 08453 02 02 03, or • write to us at: HM Revenue & Customs Charities St John’s House Merton Road BOOTLE Merseyside L75 1BB. 19 Chapter 2 CWG2(2012)
Incentive Awards Employees may receive incentive awards from you the employer, or a third party. Awards may be made in cash, goods, holidays, prizes and so on, or vouchers exchangeable for them. An example of a third party making awards is where in the course of a sales promotion, the manufacturer of the product gives awards to salespersons whose direct employer is actually selling the product in question. 32 Cash awards and awards made by voucher which can be exchanged for cash Cash awards If you provide a cash award, the value of that award must be included in the employee’s gross pay and PAYE and NICs worked out on it in the normal way. If a third party provides a cash award, the third party is responsible for deducting PAYE from the award and should seek advice on what to do from us. The value of that award must also be reported to you to enable you to account for the NICs due. For advice on what to do for PAYE and NICs purposes phone the Employer Helpline. Awards made by voucher which can be exchanged for cash If you, or a third party, award a cash voucher you, as the contractual employer must include the value of that cash voucher in the employee’s gross pay and work out PAYE and NICs in the normal way. 33 Non-cash awards and vouchers which cannot be exchanged for cash For PAYE purposes If you provide the award, you can either: • fill in the gross value of the award on form P9D or P11D, or • account for the tax by: — entering into a Taxed Award Scheme (see paragraph 38) to account for tax on the value of the award grossed at the basic or higher rate of tax, or — entering into a PAYE Settlement Agreement (see page 72) to pay in a lump sum the tax on the value of the award grossed up by reference to the employee’s rate of tax. If a third party provides the award they can only account for the tax by entering into a Taxed Award Scheme. Promoters who sell incentive schemes or operate them for others cannot account for tax on awards except those made for their own employees. For NICs purposes Non-cash awards other than non-cash vouchers Some non-cash awards attract Class 1 NICs and others Class 1A NICs. See under ‘What to include as gross pay on form P11’ in Chapter 5, page 62 for details. You the employer are liable for any Class 1 NICs even if a third party provides the awards to your employees. But, where the award attracts a Class 1A NICs liability, the third party is liable unless you arrange or facilitate the provision of the award. They can account for the Class 1A NICs by entering into a Taxed Award Scheme. For more advice see CWG5(2012) Class 1A National Insurance contributions on benefits in kind Part 6, ‘Third Party benefits’ or phone the Employer Helpline. Non-cash vouchers Payments made by way of non-cash vouchers, with certain exemptions (see below), attract liability for NICs. Unless exempt, a payment which is derived from the employee’s employment, made by you or by a third party under arrangement with you, must be included in gross pay and Class 1 NICs accounted for in the normal way. That is, you must add the cost to you in providing those non-cash vouchers to any other earnings paid in the earnings period and work out NICs on the total. Most non-cash vouchers provided by third parties, where the direct employer does not arrange or facilitate the provision, are excluded from Class 1 NICs and so do not need to be included as gross pay on form P11. They are liable to Class 1A NICs which is payable by the third party. (See helpbook CWG5(2012) Class 1A National Insurance contributions on benefits in kind, for details.) However, vouchers provided by third parties in connection with the provision of readily convertible assets (see pages 80 to 81) always attract Class 1 liability and the direct employer is responsible for the NICs. Employer pays an employee’s tax If, in addition to making an award, you pay all or part of an employee’s tax due on that award, the tax paid must also be included in the employee’s gross pay when calculating Class 1 NICs. This is the case regardless of whether the tax is accounted for through a Taxed Award Scheme. You must include the amount of tax paid in the employee’s gross pay at the time the tax is paid over to the accounts office. Third party pays an employee’s tax You should also include tax paid on an employee’s behalf by a third party where the tax is in relation to cash payments, cash vouchers or benefits in kind subject to Class 1 NICs which the third party has provided to your employees. Where the tax is in relation to benefits in kind or non-cash vouchers, which are subject to Class 1A NICs, the third party will be responsible for paying Class 1A NICs on the amount of tax paid if they have arranged or facilitated the provision of the benefit or non-cash voucher. The third party will also have to account for that payment through a Taxed Award Scheme. PAYE Settlement Agreements It is acceptable for PAYE Settlement Agreements to include non-cash voucher awards you give to your employees as long as they are ‘minor’ or ‘irregular’. In that event Class 1B NICs rather than Class 1 or Class 1A NICs will be due. If you have such an agreement and are in any doubt as to whether you are complying with the terms of it, get in touch with us. For more information about liability for NICs on items included in PAYE Settlement Agreements, see page 72. CWG2(2012) Chapter 2 20
Page 1 and 2: Employer Further Guide to PAYE and
Page 3 and 4: Contents Numbers to the left of top
Page 5 and 6: Workers providing their services th
Page 7 and 8: Terms used in this guide Form P11 T
Page 9 and 10: Substitute end of year forms P14 an
Page 11 and 12: When to work out NICs and PAYE As a
Page 13 and 14: Pay intervals To work out NICs Work
Page 15 and 16: For PAYE purposes Work out PAYE usi
Page 17 and 18: Example The final salary to a month
Page 19 and 20: If you have already submitted your
Page 21 and 22: Chapter 2 - Special procedures Pens
Page 23: Commutation payment where pension p
Page 27 and 28: • the first £55 a week of childc
Page 29 and 30: Method B Work out the NICs on the w
Page 31 and 32: Example 2 Method B Based on the emp
Page 33 and 34: Employees involved in a trade dispu
Page 35 and 36: Chapter 3 - National Insurance only
Page 37 and 38: 66 An employee receives one payment
Page 39 and 40: Note 2 Note 1 Download the P11 Calc
Page 41 and 42: Box A Box B Employer name HM Revenu
Page 43 and 44: Deductions Working Sheet P11 Employ
Page 49 and 50: Note 1 Download the P11 Calculator
Page 51 and 52: 73 Working out NICs payable at the
Page 53 and 54: Although all cases will be consider
Page 55 and 56: Chapter 4 - Special types of employ
Page 57 and 58: 111 Students who are on courses abr
Page 59 and 60: 113 Gangmasters or contractors enga
Page 61 and 62: 116 Liability to pay NICs for emplo
Page 63 and 64: 120 Employees working in offshore a
Page 65 and 66: Appropriate deductions will be allo
Page 67 and 68: Chapter 5 - Pay, expenses and benef
Page 69 and 70: Type of payment Include on P11 for
Page 71 and 72: Type of payment Include on P11 for
Page 73 and 74: 132 Form P11D(b) Complete a form P1
Page 75 and 76:
Type of expense or payment P9D P11D
Page 77 and 78:
Dispensations 137 What is a dispens
Page 79 and 80:
141 NICs on motoring expenses payme
Page 81 and 82:
Employee started work at the new lo
Page 83 and 84:
Type of payment Include in gross 9.
Page 85 and 86:
For PAYE purposes • Treat the emp
Page 87 and 88:
Share Incentive Plans (SIP) Shares
Page 89 and 90:
If there is a third party, is it a
Page 91 and 92:
Appendix - other useful forms and g
Page 93 and 94:
Index Page numbers are shown in bol
Page 95 and 96:
Health cover 64 CE under Insurance
Page 97 and 98:
PAYE see also employees employee le
Page 100:
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Employer Further Guide to PAYE and NICs - HM Revenue & Customs

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