Tax and Paying People – allowances, benefits, lump sums

Do you pay your employees sums in addition to their normal wages, such as allowances, benefits, lump-sum payments, or holiday pay? Be aware of your tax liabilities and know when you need to deduct PAYE on behalf of your employees.

Sometimes you may pay your employees sums in addition to their normal wages, such as:

- allowances

- benefits

- holiday pay

- lump sum payments

Some are tax free, but most are taxable. For some, the employer pays tax. For others the employer deducts PAYE on the employee's behalf.

You may also provide various non-cash benefits to your employees as part of their total employment package. Even where the benefits are not in cash, they still have a value which is taxable.

The tax treatment depends on what the payments are for and the circumstances that apply.

It can be confusing working out the tax treatment of these payments for your business. Let us know if you would like to discuss how the rules apply to your business.