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HMRC internal manual

Employment Income Manual

Incentive award schemes: accounting and reporting procedures for incentive awards

Cash awards

Any person, whether a direct employer or a third party, who makes a cash award to an employee has to operate PAYE on the award. There are special PAYE procedures if the payer wishes to pay the award “free of tax”. These are covered at EP1230 to 1239 and in the Employer’s Further Guide to PAYE and NICs (CWG2).

Non-cash awards

PAYE settlement agreements (PSAs)

Employers providing their direct employees with non-cash awards can choose to enter into a PSA to pay the tax on a grossed up basis on the awards. The arrangements are agreed with the employer’s tax office. See EIM11270 which describes PSAs, and the PAYE Settlement Agreement Handbook for PSA procedures.

Taxed award schemes (TAS)

An employer or a third party can choose to enter into taxed award scheme arrangements (TAS) to pay the tax on a grossed up basis on non-cash awards. TAS arrangements are agreed by the employer or third party with the Incentive Award Unit. See EIM11235 and EIM11240 about TAS agreements and the Incentive Award Unit.

Reporting

Employers have to report in the normal way on forms P9D (for 2015/16 and earlier) or P11D any non-cash awards they make to their own employees where a PSA or a TAS has not been used. (PSAs and TAS have their own reporting procedures).

Where incentive awards are provided by third parties it is unlikely that the direct employers of the employees receiving the awards will have “arranged” the provision. So the direct employers do not have any reporting responsibility for third party awards.

Third parties who have not used a TAS can be asked to make a return under Section 15 TMA 1970 of non-cash awards provided to employees of others. The return issue is controlled from the establishment file “Other Incentive Award Schemes”.