COMPLIANCE
Mike NicholasMCIPP, editor of CIPP’s Professional magazine , provides a reminder of the complex compliance issues Notional payments
T he term ‘notional payment’ applies to a range of payments made to employees that are not in the form of cash but which must be treated as cash for purposes of pay as you earn (PAYE) and National Insurance contributions (NICs). Section 710 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) defines a range of payments that are to be treated as notional payments, including the following. ● Cash vouchers – A ‘cash voucher’ is a voucher, stamp or similar document that can be exchanged for a sum of money that is greater than, equal to, or not substantially less than the expense incurred by the person at whose cost the voucher, stamp or similar document is provided. If an employer gives a cash voucher to an employee, the employer is treated as making a payment of income equal to the amount for which the voucher is capable of being exchanged. However, this provision does not apply if the cash voucher is used to meet business expenses or is exchanged for an amount that is used to meet business expenses. The payment is treated as being made at the time the employee receives the voucher. (ITEPA s.693, https://bit. ly/3fQFY8W) ● Non-cash vouchers – A non-cash voucher is a voucher, stamp or similar document or token that is capable of being exchanged for money, goods or services,
● Credit tokens – A credit token is a credit card, debit card or other card, a token, a document or other object given to a person by another person who undertakes on the production of it, to supply money, goods or services on credit, or if a third party supplies money, goods or services on its production, to pay that third party for what is supplied. (ITEPA s. 695, https://bit.ly/3s6zw2y) ● Readily convertible assets (RCAs) – If an employee receives income in the form of a RCA, the employer is treated as making a payment of income equal to the amount that, on the basis of the best estimate that can reasonably be made, is the amount of income that is likely to be the PAYE income for the asset. Examples of readily convertible assets are stocks and shares, gold bullion, commodities, loan securities and bonded goods. (ITEPA s.696, https://bit.ly/2VFscPd) ● Enhancing the value of an asset – An employee is treated as having received a RCA if provided with anything that enhances the value of an asset in which the employee, or a member of the employee’s family or household, already has an interest, and the asset, with its value enhanced, would be treated as a RCA if it were provided at the time of the enhancement. (ITEPA s.697, https://bit. ly/3Autb42) ● Charges on employment-related securities – A charge to tax arises in
a transport voucher, or a cheque voucher, but does not include a cash voucher. ...the amount of tax that the employee fails to repay to the employer within ninety days of receiving the notional payment is treated as a benefit to the employee... If an employer gives a non-cash voucher to an employee, and the voucher is either capable of being exchanged for anything that would fall to be regarded as a readily convertible asset (RCA), or itself would fall to be regarded as an RCA (see below), the employer is treated as making a payment of income equal to the cost of the expense incurred in or in connection with the provision of the voucher, and the money, goods or services for which it is capable of being exchanged by the person at whose cost they are provided. (ITEPA s.694, https://bit.ly/3xApCrc)
| Professional in Payroll, Pensions and Reward | September 2021 | Issue 73 26
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