Expenses and benefits: third-party awards

Overview

1. Overview

As an employer, you have certain tax, National Insurance and reporting obligations if your employees receive third-party awards.

What’s included

Third-party awards are normally incentives provided by someone other than you. For example, if you run a car dealership, your employee might receive an award from a car manufacturer.

Awards can include:

  • cash
  • vouchers
  • cheques
  • other gifts

What to report and pay

2. What to report and pay

What you have to report and pay depends on what kind of third-party award your employee receives, and whether you arrange the award.

Cash and cash-exchangeable goods

The third party must deduct PAYE tax from the award and pay it to HMRC.

You must deduct Class 1 National Insurance on the combined value of the award and the PAYE tax paid on it by the third party.

Non-cash goods

If the third party arranges the award

They must:

  • account for the tax due on the award – this should be done by entering a Taxed Award Scheme (see the technical guidance at the end of this guide)
  • pay any Class 1A National Insurance due on the value of the award and on the tax paid on it

In some instances Class 1 National Insurance will be due instead, eg if your employee’s personal bills are paid on their behalf. In this case you will need to deduct and pay them.

If you arrange the award

In this case:

  • the tax due on the award must still be paid by the third party
  • you must pay any Class 1A National Insurance that’s due

Work out the value

3. Work out the value

The value of the third-party award depends on what the award is.

Cash

The value to use is the amount of cash awarded, including the PAYE tax paid.

Vouchers

If the award consists of vouchers, then the value to use is the cost to the third party of providing the vouchers, including the PAYE tax paid.

Other gifts

If the award is something other than vouchers, use the cost to the third party of providing the award.

Technical guidance

Last updated: 8 July 2016

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