Taxable benefits that are not payrolled: time limits for making good
Making good is where an employee gives something (usually a cash payment) to the person providing a benefit-in-kind in return for it. The meaning of making good can be found at EIM21120.
Making good has the effect of reducing the taxable value of the benefit, often to zero and reduces the amount of tax and Class 1A National Insurance contributions (NICs) payable on the benefit.
Treatment prior to the 2017/18 tax year
Prior to the 2017/18 tax year, there was a range of dates set out in legislation and in guidance for making good benefits in kind.
The guidance for each type of benefit in this manual makes specific reference to the treatment to be applied for 2016/17 and earlier years.
Treatment from the 2017/18 tax year
This guidance only applies to the making good of benefits which are not payrolled through Pay As You Earn (PAYE) under voluntary payrolling arrangements (see PAYE58701). This guidance applies for 2017/18 onwards.
From 6 April 2017 the latest date for making good for all non-payrolled benefits (other than beneficial loans) is 6 July following the end of the tax year in which the benefit is provided if the amount made good is to be taken into account for tax and NIC purposes.
Dates for the making good of payrolled benefits were set in legislation from the 2016/17 tax year (Income Tax (Pay As You Earn) (Amendment) Regulations 2016) as the end of the tax year in which the benefit is provided (or 1 June following the tax year for the fuel benefit charge). For making good in relation to payrolled benefits see PAYE58701 and https://www.gov.uk/guidance/payrolling-tax-employees-benefits-and-expenses-through-your-payroll
Tax and NICs implications
Generally, the cash equivalent of the benefit is subject to tax and liable for Class 1A NICs. This is usually the cost to the employer of providing the benefit less any amount made good. There are special rules for some benefits including for example, company cars. Making good payments have the effect of reducing the taxable value of the benefit-in-kind, potentially to zero.
From the 2017/18 tax year, the taxable value and the value on which Class 1A NICs are payable is reduced only if the benefit is made good by the 6 July following the end of the tax year in which the benefit in kind is provided.
(Regulations 71 and 80 of the Social Security (Contributions) Regulations 2001 set the dates by when payments of NIcs must be made. A making good payment by 6 July will also automatically remove or reduce the Class 1A NICs liability. Any making good after 6 July will not reduce the Class 1A NICs due.)