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HMRC internal manual

Compliance Operational Guidance

Supporting Guidance: employer compliance: guidance by subject: free of tax payments: FOT payments - action to take where part of pay is 'gross' and part is 'net'

Where payments to employees consist of part ‘gross’ pay and part ‘net’ (free of tax) pay

  • form P11(FOT) cannot be used.

The employer should calculate the tax and NIC in accordance with the example listed in Chapter 2 of the CWG2 (Employers Further Guide to PAYE and NIC).

Where irregularity is discovered in such cases, the caseworker should

  • explain to the employer how to make any necessary open year adjustments, and
  • seek recovery for closed years, if appropriate

Note: Calculation of tax and NIC will depend on whether it was originally agreed by the employer to calculate “Free of tax” or not.