Pay and Benefits

Q An employee was away on company business and has submitted an expense claim for reimbursement of taxi fares. On checking the claim forms there does not appear to be a receipt for this travel. Our company policy quite clearly states that employees must provide receipts to support any additional subsistence claims. Are we allowed to reimburse this as a business expense, therefore as a gross payment?

 

A You have quite clearly stated in your expenses policy document that “claims must be receipted”. So, unless your employee is able to produce a receipt to support the claim for this travel, you have no way of substantiating the cost. As a result a direct cash reimbursement must be subject to Pay As You Earn income tax and National Insurance. You can choose to gross the payment up to ensure that the employee is not unduly penalised.

Q We have an employee who is on long-term sick leave. It has been confirmed that he will be unable to resume any form of working duties in accordance with his employment. Therefore, we mutually agreed to terminate the employment of the employee concerned. We have decided to make a lump-sum payment which is likely to be several thousand pounds. Will this payment be subject to tax and National Insurance?

 

A Any lump-sum termination payment that is made to an employee to compensate for the loss of employment as a result of disability, injury or ill-health which stops them from working can be paid tax-free up to the amount of £30,000. It would be advisable to agree with HM Revenue & Customs when paying any amount that exceeds £30,000 tax free.

Q In our business we buy expensive equipment for our employees to use in the performance of their duties. The equipment is paid for and owned by the company. Recently the suppliers of the equipment have been running a series of promotions offering incentives to buy their products. The amount we have spent has qualified us for quality boxed crystal sets on three occasions. Therefore, we have decided to raffle this crystal to our employees. Will this create a taxable benefit on the individuals who win these prizes?

 

A This type of gift would fall under the heading of third party gifts. There are, however, some restrictions that would apply:
•    the person providing the gift is neither the employer, nor a person connected with the employer
•     neither the employer nor a person connected with the employer has directly or indirectly procured the provision of the entertainment
•     the gift is not provided either in recognition of particular services, which the employee has performed in the course of the employment, or in anticipation of particular services which are to be performed by the employee in the course of the employment.

 

You, as the employer, had no involvement in the arrangement of supplying this free crystal, which was given by the supplier because a certain amount of money had been spent. Provided there is no additional cost to the employer, and the value of the gift to each employee does not exceed £250 in a tax year, it will not incur a taxable benefit on the employee. The regulations that deal with this type of taxation are covered under section 324 of ITEPA, which sets down the conditions, in this case, for exempting the gift as a taxable benefit.

 

Q At the end of a recent payroll run we realised that we had made a large overpayment to an employee. Unfortunately, upon recalling the salary from the bank, we inadvertently recalled the payment from the wrong employee. The error was not picked up until payday when the employee questioned why he had not been paid. We immediately addressed the problem by transferring the correct salary to the said employee. However, he has notified us that due to this error he has incurred bank charges largely because he has several direct debit payments which are timed to coincide with the payment of his salary. First, can we credit him with the cost of these charges, and second, will he have to pay tax on this reimbursement amount?

 

A As an employer you must fulfil certain obligations. A primary function of the payroll department is to ensure that you pay your employees accurately and on time, and that you apply the correct treatment to certain payments in accordance with certain legal frameworks.
Under a contract of employment, the employer can refund these charges without a taxable benefit arising in certain circumstances. These include if the employer fails to make a payment to its employees directly into their designated bank account on or before the contractual due date, which results in the employee suffering any hardship, . You should ensure that you receive proof from the employee to support such claims.