Tax on employee incentives question
Discussion
We’re looking at giving incentives to our employees for hitting targets, e.g. a weekend away, driving day, etc.
Friends working for banks and places like Foxtons in London go on these sort of trips several times a year and tell me they do not to pay any tax on them or see any mention of it on their payslips.
However, our company accountant says that if we were to pay for an employee to go away for the weekend of give them some similar incentive they should be taxed on it as it is a benefit in kind.
Does anybody know how “London” companies get round this? Do they record it as team building or a training weekend or something like that?
Thanks
TSS
Friends working for banks and places like Foxtons in London go on these sort of trips several times a year and tell me they do not to pay any tax on them or see any mention of it on their payslips.
However, our company accountant says that if we were to pay for an employee to go away for the weekend of give them some similar incentive they should be taxed on it as it is a benefit in kind.
Does anybody know how “London” companies get round this? Do they record it as team building or a training weekend or something like that?
Thanks
TSS
Yes, it's called tax fraud 
Seriously though, any scheme which results in an employee or director receiving any sort of reward OTHER THAN CASH/WAGES is, by definition, receiving a "payment in kind" and it is therefore taxable (and possibly subject to NI as well) as a Benfit in Kind.
The EMPLOYER is obliged by law to disclose such benefits for every employee/director who has received them and there is a special employer's form (the P11d) designed specially for that purpose.
If the employer completes a P11d for an employee, he is also obliged - by law - to supply a copy of the P11d or a copy of the details shown on the P11d to the employee.
This is especially important if the employee completes his/her own Self Assessment tax return.
However, when it comes to "jollies" and "trips" provided free to employees and/or their families, some businesses frankly lie by describing them as "advertising" or "promotoin" or "training" - therby removing the obligation to disclose the cost as an entry on a P11d.
However, they are taking massive risks doing this as any employer can be subject to a PAYE investigation and if such practices come to light during such an investigation, unless the employer really CAN argue successfully that these costs were genuinely not staff benefits/rewards, then it is going to work out VERY expensive.
Seriously though, any scheme which results in an employee or director receiving any sort of reward OTHER THAN CASH/WAGES is, by definition, receiving a "payment in kind" and it is therefore taxable (and possibly subject to NI as well) as a Benfit in Kind.
The EMPLOYER is obliged by law to disclose such benefits for every employee/director who has received them and there is a special employer's form (the P11d) designed specially for that purpose.
If the employer completes a P11d for an employee, he is also obliged - by law - to supply a copy of the P11d or a copy of the details shown on the P11d to the employee.
This is especially important if the employee completes his/her own Self Assessment tax return.
However, when it comes to "jollies" and "trips" provided free to employees and/or their families, some businesses frankly lie by describing them as "advertising" or "promotoin" or "training" - therby removing the obligation to disclose the cost as an entry on a P11d.
However, they are taking massive risks doing this as any employer can be subject to a PAYE investigation and if such practices come to light during such an investigation, unless the employer really CAN argue successfully that these costs were genuinely not staff benefits/rewards, then it is going to work out VERY expensive.
TSS said:
We’re looking at giving incentives to our employees for hitting targets, e.g. a weekend away, driving day, etc.
Friends working for banks and places like Foxtons in London go on these sort of trips several times a year and tell me they do not to pay any tax on them or see any mention of it on their payslips.
However, our company accountant says that if we were to pay for an employee to go away for the weekend of give them some similar incentive they should be taxed on it as it is a benefit in kind.
Does anybody know how “London” companies get round this? Do they record it as team building or a training weekend or something like that?
Thanks
TSS
Friends working for banks and places like Foxtons in London go on these sort of trips several times a year and tell me they do not to pay any tax on them or see any mention of it on their payslips.
However, our company accountant says that if we were to pay for an employee to go away for the weekend of give them some similar incentive they should be taxed on it as it is a benefit in kind.
Does anybody know how “London” companies get round this? Do they record it as team building or a training weekend or something like that?
Thanks
TSS
Short answer is no I don't but wish I did. I am planning on taking my employees away for a long weekend and spending about £1000 per person.
I am aware the revenue should be informed of more than £160 spent per employee per year on any incentive/dinner/anything. You can't however for example have a Xmas lunch @ £120 per person and then have another incentive etc. at say £55 and just inform the IR of the difference (i.e. £15)during the same tax year. Transactions have to total less than £160 which is just bloody silly!
I suspect that the companies you refer to are hedging their bets and employees could be hit with an unexpected tax bill.
TSS said:
Thanks for the answers. Would it be possible for the company to pay the tax on the employee’s behalf, or would they then get taxed on the payment of the tax as well?
Yes and no. The firm can pay the staff a "bonus" "associated" with the "benefit-in-kind" that is the gross amount required to pay the BIK tax bill. You'll need to pay your 40% taxpayers more to cover it.
Basically "incentives" are shite. The employees soon work out that the jollies cost them tax money - and that the bonus necessary to cover the tax makes the jollie VERY expensive. They'd much rather get a bonus frankly.
The way that these Jollies typically go is that they are given to customers not staff. Of course - staff may be required as part of their job to accompany the customers on the jolly.
Typically this is written off as a cost of selling/marketing. It is, of course, "customer entertainment" upon which you cannot reclaim the VAT. I'm afraid EricMc will need to confirm whether or not it is taxable for Corporation Tax purposes. "London" firms do a VAST amount of this...and its all "marketing" as far as I can work out...
Yes.
Paying tax on behalf of an employee is a benefit in kind.
However, the primary legal obligation on calculating and paying Benefit in Kind based taxes and NI rests squarely on the shoulders of the employer. If the employer fails to disclose and these benefits correctly and notify the details on the annual P11d (and P46 Car if it involves motor cars), they can be severly punished by the Revenue.
The Revenue can fine an employer up to £3,000 for each and every P11d either incorrectly completed or not completed.
It's only if, for some reason, that the employer is unable to pay over the outstanding PAYE and NIC that they will pursue the employee. But they can do both.
Paying tax on behalf of an employee is a benefit in kind.
However, the primary legal obligation on calculating and paying Benefit in Kind based taxes and NI rests squarely on the shoulders of the employer. If the employer fails to disclose and these benefits correctly and notify the details on the annual P11d (and P46 Car if it involves motor cars), they can be severly punished by the Revenue.
The Revenue can fine an employer up to £3,000 for each and every P11d either incorrectly completed or not completed.
It's only if, for some reason, that the employer is unable to pay over the outstanding PAYE and NIC that they will pursue the employee. But they can do both.
Don said:
The way that these Jollies typically go is that they are given to customers not staff.
I *think* that you have to very careful here - in theory the customer should declare the hospitality as a BIK.
In a similar situation we had a nightmare at work a few yrs ago where all the senior staff where taken for a weekend jolly (sorry, strategy meeting) and our wives where required to come. They pretty well all hated the idea, and of course had to arrange child care etc etc. There was then uproar when a memo came around saying that the wives costs would be regarded as a BIK so we'd have to pay extra tax! Wives were never invited again!
Absolutely correct. An employer is supposed to declare a BIK for an employee when the employee receive some sort of benefit from a customer/supplier or other business.
For the employer to be able to fulfil this legal obligation, he may be dependent on his em[ployees notifyingh him of any perks je/she may have received from outside businesses. I am absoluely certain that not all employees are that honest.
However, the employer is at fault if the disclosure is not made.
It's an extremely tricky and dangerous piece of legislation.
For the employer to be able to fulfil this legal obligation, he may be dependent on his em[ployees notifyingh him of any perks je/she may have received from outside businesses. I am absoluely certain that not all employees are that honest.
However, the employer is at fault if the disclosure is not made.
It's an extremely tricky and dangerous piece of legislation.
Eric Mc said:
Absolutely correct. An employer is supposed to declare a BIK for an employee when the employee receive some sort of benefit from a customer/supplier or other business.
For the employer to be able to fulfil this legal obligation, he may be dependent on his em[ployees notifyingh him of any perks je/she may have received from outside businesses. I am absoluely certain that not all employees are that honest.
However, the employer is at fault if the disclosure is not made.
It's an extremely tricky and dangerous piece of legislation.
For the employer to be able to fulfil this legal obligation, he may be dependent on his em[ployees notifyingh him of any perks je/she may have received from outside businesses. I am absoluely certain that not all employees are that honest.
However, the employer is at fault if the disclosure is not made.
It's an extremely tricky and dangerous piece of legislation.
We regard such things as entertaining, and we show (in our expense claims) the name and company of the person entertained.
In real life, would the taxman be likely to look at that customers P11D record to see if they had shown it? We could be talking about a few hundred pounds in some cases.
The people who particularly seem to get away with this are the employees who are based abroad but have their expenses are paid from the UK. There would appear to be no way the Revenue can determine the validity (or otherwise) of their expense claims and it's impossible for the UK taxman to assess income tax on anything that in the UK could be regarded as a benefit.
Edited by deva link on Friday 29th December 19:24
As always, life is not black and white. What the taxman sets out as being the law is not always so clear cut in reality. All anyone can say is that paying amounts on behalf of employees, or providing free holidays/trips abroad for employees or knowing that your employees are benefitting from customer/supplier largess exposes you as an employer to potential problems with BIK returns.
If in doubt, explain the siuation to the Revenue and ask them for a WRITTEN (not verbal) ruling.
If in doubt, explain the siuation to the Revenue and ask them for a WRITTEN (not verbal) ruling.
TSS said:
Thanks for the answers. Would it be possible for the company to pay the tax on the employee’s behalf, or would they then get taxed on the payment of the tax as well?
Sorry for bringing this subject back up, but you as the employer could also enter into a PAYE Settlement Agreement (PSA) with HMRC. This is intended to reduce the administrative burden from the employer, and from the HMRC. The companies that you mentioned will almost certainly have entered into one of these agreements, choosing to pay the Tax and NI on behalf of their staff for any incentives or staff entertaining. The staff would then not be aware of the Tax and NI being paid, as it doesn't appear on their wage slip or on their P11D. I have tried to attach a link below to the relevant page on the HMRC site.
The down side to this is of course that you do have to pay tax on the tax (by grossing up), and Class 1B National Insurance (12.8%) on the full amount.
Not sure if this helps or hinders, nor indeed if anyone is still interested in this topic.
www.hmrc.gov.uk/guidance/paye-settlements.htm
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