Payroll – remembering taxable perks

When it comes time to complete the payroll run, your accounts software should make quick work of deducting PAYE income tax and National Insurance contributions for each of your employees. However you will also need to apply similar deductions to any taxable perks they also receive.

Tips and bonuses

In service industries, tips from customers are increasingly common. Some firms also apply optional “service charges” to the bill, intended to boost the wage packets of their workers. Staff receiving these payments often feel that they are a well-earned bonus – a little extra that is added at the customer’s behest, and therefore theirs to claim without being formally added to their wages. Unfortunately, HMRC takes a different view, expecting all such tips to be declared and taxed as regular earnings.

The same rules apply for businesses that pay employees performance bonuses or ex-gratia payments for Christmas and birthdays. These are taxable benefits and therefore liable for income tax and National Insurance deductions.

Total earnings

You will also need to monitor total earnings – bonuses and tips can push employees into higher wage brackets, increasing the amount of income tax payable. Make sure you check that your accounts/payroll system is able to make these adjustments automatically, or you could attract unwanted attention (and fines) from HMRC for underpayment of taxes due.

If you are unsure as to which employee benefits are taxable, or the applicable rates, or you’d like advice on payroll duties, please get in touch with the 3 Wise Bears’s expert Payroll accountancy team today.