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HMRC internal manual

Compliance Operational Guidance

From
HM Revenue & Customs
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Supporting Guidance: employer compliance: guidance by subject: computations: benefits in kind - employer willing to settle employee's liability

See COG911010.

Where an employer is willing to meet the employees’ liability, you should explain

  • that the tax underpaid will need to be ‘grossed up’
  • ‘grossing up’ takes account of the additional liability on the further benefit to the employees of having their tax paid for them
  • NIC is due on the tax borne on behalf of the employees as by agreeing to settle the employees’ liability the payment is regarded as earnings for NIC purposes.

The ‘grossed up’ value is

  • a calculation of the tax due on the benefit to be paid by the employer, then
  • grossing up of the total tax by reference to the current year’s basic tax rate.

For example a computation on an annual benefit of £600 spanning two tax years is set out as follows

  • 2006-2007 £600 at 22% = £132
  • 2007-2008 £600 at 22% = £132
  • Total = £264

Settlement agreed in 2008-2009 when basic rate 20% therefore

  • £264 x 100/80 = £330

Grossed up tax for inclusion in the settlement is £330.

Class 1 NIC on the tax borne assuming category A is therefore

  • £330 x 23.8% (employee + employer) is £78.54 rounded to £78 (COG908030).

See the example (Word 39kb) Accommodation Benefit provided to John Smith.

You should bear in mind that

  • higher rate tax may be applicable to some employees, and
  • where appropriate ‘grossing up’ should reflect this
  • the appropriate category of NIC applies
  • the UEL for the employee may have been reached therefore the primary NIC will be 1% for years up to and including 2010-11 and 2% for subsequent years.

You should also

  • seek agreement from the employer to include the NIC on tax borne in the settlement.

Note: Where the employer agrees to settle NIC on tax borne it becomes due when the settlement of the tax is agreed as indicated above - ‘the current year’. It follows that when settlement is agreed the employer has not submitted an inaccurate return relating to the NIC on tax born so no penalties can be considered on the NIC, see COG914025.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) CH80000(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

If the employer resists settlement

  • because of the ‘grossed up’ element you should consult the manager with a view to seeking advice from TAA Liverpool, see COG904770

For any other reason see COG908070.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000) COG908080(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

ECLSS0480 to ECLSS0740 and for actual examples see ECLSS0940