Tax treatment of insurance agents: invested commission
Where an employee is entitled to commission (that is earnings from his or her employment) but requests that it should be, or allows it to be, invested in the policy that earned the commission (or in any other policy or investment) an application of commission due occurs. This is so whether or not it is the employee’s own policy or investment. The full amount of the commission applied remains chargeable on the employeeas earnings (Parker v Chapman (13TC677), see also EIM42705). An employee’s commission that is earnings from his or her employment and which is invested as a requirement of the employer, or of the person from whom it is due, is similarly chargeable (Smyth v Stretton (5TC36)).
If the employee is not entitled to commission as such but receives rights from his or her employment that can be realised or turned to account, the charge will be the money’s worth of those rights (Abbott v Philbin (39TC82), see also EIM00530). Where commission or other taxable income is provided in the form of readily convertible assets rather than cash, PAYE applies under Part 11 Chapter 4 ITEPA 2003 (see EIM11800 onwards).
Exceptionally, where an employee receives rights that are not of the type mentioned above, there may still be a liability to tax under the benefits code. For example, a commission invested by the employer will be deemed to be provided by reason of the employment (Section 201(3) ITEPA 2003, see EIM20502) and so will give rise to a charge. A commission invested by a third party will only give rise to a charge if it is provided by reason of the employment. Usually, the charge in either case will be the amount of commission invested by the employer or third party.
Where commission is invested for the benefit of a member of the family or household of an employee and for 2015/16 and earlier the employee is not in an excluded employment (see EIM20007) lower paid, the employee will be liable to a charge under Section 201 in the same way as if the investment had been made for his or her own benefit.