MY CIPP
The CIPP’s Advisory Service team provides answers to popular questions
Different car arrangements and the rates to pay Q: In our organisation, there are some employees who have a company car, others who receive an annual car allowance for using their own vehicle and others who receive an annual car allowance and contribute via salary sacrifice to a third party for an e-vehicle. What are the correct mileage rates to pay? Are they all paid at the company car rates? A: So, the advisory fuel rates (AFRs) and the approved mileage allowance payments (AMAPs) can be used for vehicles. The correct payment used is determined by who owns (or leases) the vehicle. If the company pays for the lease or owns the vehicle, then the AFRs are used. This is updated quarterly, and the reimbursement of mileage is dictated by the emissions and fuel type. Find out more here: https://ow.ly/fQ1v50Wobf3. If the employee owns or leases and pays for their own vehicle, then the AMAPs are used. You can find out more on this here: https://ow.ly/RAGJ50Wobks. It doesn’t matter if a salary sacrifice scheme is operated, as the employer is paying for the lease of the vehicle. Nor does it matter whether there’s a car or mileage allowance.
Pay as you earn settlement agreement (PSA) marginal tax rates Q: What figures do we base the marginal tax rates on for each employee who has received a benefit under our PSA? Should this be determined by their base annual salary in the tax year or by their actual taxable income? A: PSA calculations are based on an employee’s marginal rate of tax at the end of the tax year. To establish an employee’s marginal rate of tax, you need to take their gross taxable pay plus the value of any benefits provided and then deduct their personal tax allowance according to their final tax code. This manual from HM Revenue and Customs (HMRC) provides further information: https://ow.ly/8ngT50WobqO. Paying school fees for an employee’s child Q: Our organisation has decided to pay school fees for an employee’s child. Could this amount then be deducted from net pay for the employee? Are there any tax implications to this? A: The first thing to establish is who the contract is with, and how the school fees are going to paid. This will then help to determine any reporting requirements. If the contract for the school fees is between the school and the employer, and the employer pays those fees directly, this will be classed as a benefit in kind. This amount must be reported on the P11D or payrolled for tax and the employer must pay Class 1A National Insurance contributions (NICs) on the cost of the fees. If there’s an agreement that the employee will pay towards the cost of the fees, and this is taken from their net
pay, this will reduce the cash equivalent of the benefit (referred to as ‘making good’). However, if the contract is between the school and the employee but the employer pays the fees directly, the reporting requirements are different. The cost of the school fees must be reported on the P11D or payrolled for tax, but Class 1 NICs must be deducted on the amount through the payroll. The employee could agree to pay towards the cost of the fees from their net pay, and this would reduce the cash equivalent of the benefit. If the employee pays the fees and the employer reimburses them, this counts as earnings and would be subject to tax and Class 1 NICs through the payroll. More guidance on this topic can be located here: https://ow.ly/pwlw50WobFr.
Are there any tax implications if a business opts to pay the school fees for an employee’s child?
P45s when employees move to a new company under the Transfer of Undertakings (Protection of Employment) (TUPE) Regulations 2006 Q: A client has employees who are being moved to a new company under TUPE. Do we need to prepare P45s for them? A: Under The Income Tax (Pay As You Earn) Regulations 2003, Regulation 102 states that the transfer of a business
Where different car arrangements are used within a company, what are the correct rates to pay?
| Professional in Payroll, Pensions and Reward | September 2025 | Issue 113 8
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