As an employer, you have certain tax, National Insurance and reporting obligations if your employees receive third-party awards.
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:
- other gifts
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.
If the third party arranges the award
- 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
The value of the third-party award depends on what the award is.
The value to use is the amount of cash awarded, including the PAYE tax paid.
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.
If the award is something other than vouchers, use the cost to the third party of providing the award.
The following guides contain more detailed information:
Last updated: 8 July 2016