Income tax paid on behalf of employee
Employment Tax
Guidance
Introduction
Employers may wish to make payments of employment income to an employee / director without the employee suffering a tax or NIC cost on that pay. In other words, the employer wants to pay an amount net of tax and NIC. In some instances, often with professional sports persons and performers, the engagement is defined in the contract as net of tax and NIC, so this outcome needs to be achieved.
To achieve this, the employer must gross up the amount of the payment to take account of the tax and NIC.
Tax-free payments to employees
An employer may knowingly choose to make a payment to an employee or director net of tax and NIC. In these instances, the amount should be grossed up to take account of income tax and Class 1 NIC, as the employer is effectively undertaking to meet the tax bill of that employee in relation to that payment. HMRC guidance is at EIM07700.
For example, an accountancy firm wishes to reward an employee for passing
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