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HMRC internal manual

Employment Income Manual

HM Revenue & Customs
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Incentive award schemes: tax liability on incentive awards


Where an employer meets the tax payable on a non-cash incentive award given to a direct employee by entering into a PAYE settlement agreement (PSA), the award is not chargeable to tax on the employee. PSAs cannot be used to pay the tax on cash incentive awards. PSAs are covered at EIM11270.

Apart from non-cash awards covered by a PSA, all incentive awards made to employees are chargeable on them as employment income.

Cash awards

In the case of cash awards the amount chargeable as earnings is the amount of the award.

Non-cash awards

In the case of non-cash awards the amount chargeable depends upon the nature of the award:

  • vouchers used

    • where awards are obtained through the use of vouchers, the charge for all employees is the full cost to the provider of making the award (see EIM16140)
  • vouchers not used

    • for directors and employees within the benefits code (see EIM20100 to EIM20102) the charge is the full cost to the provider of making the award
    • for employees who are in an excluded employment (EIM20007) the charge is the second-hand value of the award if it can be converted into money (see EIM00540 to EIM00560).