POLICY HUB
for 12 months after an employee leaves the company and is processed as a payment after leaving? It’s a dividend equivalent that’s paid to employees via monthly payroll. A: Dividends and dividend equivalents shouldn’t be processed through payroll, as they’re not employment income, and nor do they attract pay as you earn (PAYE) tax or NI contributions (NICs). Confirmation that dividends don’t attract PAYE tax or NICs can be located here: https:// ow.ly/ck1e50WXAV3 and https://ow.ly/ cxWK50WXAXB. Individuals in receipt of dividends must report them on a self-assessment tax return. However, if these payments are similar to a ‘performance bonus’, which is linked to the individual’s performance, in this instance, they’d need to go through the payroll and be subject to tax and NICs. The employee’s tax code would need to be amended to 0T on a ‘week 1’ or ‘month1’ basis, and this would be an irregular payment, so the weekly NI threshold should be applied. Further guidance regarding the treatment of payments after leaving can be found here: https://ow.ly/IP3G50WXBjo.
employer has registered to payroll their benefits. You could discuss the possibility of adding this to a PAYE settlement agreement (PSA) with your client if they don’t want their employees to have to pay tax on this, especially as it’s an incentive for performance. Please see guidance on PSAs here: https://ow.ly/AffB50WXBE6. Eligibility for the employment allowance Q: Could this company claim the employment allowance? There are two employees, the first one is a director paid above the NICs secondary threshold and the second is an employee paid above the NICs secondary threshold, who is under 21 and on NI category letter M. A: Within Section 1(b) of the National Insurance Contributions Act 2014, it states that, to be eligible for the employment allowance, the employer is liable for, and the person incurs, secondary Class 1 NICs. Therefore, the employee on NI category letter M would need to be earning above the NICs upper secondary threshold (when employer class 1 NICs become due). Please see here for further information: https:// ow.ly/f3mq50WXC1g. n
What’s the correct tax treatment of my client’s proposed incentive scheme?
Tax treatment of incentive scheme
Q: My client is going to introduce an employee incentive scheme. Employees can earn points and once they reach a certain number of points, they can select what they want and the client will purchase it and give it to them. The gifts will be worth over £50 and are performance related. As a result, does this need to go through payroll and subject to tax? A: This certainly wouldn’t be classed as a trivial benefit and would definitely attract a benefit in kind liability. It would need to be reported on a P11D at the end of the tax year and be subject to Class 1A NICs, or it could be a payrolled benefit if the
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| Professional in Payroll, Pensions and Reward |
Issue 115 | November 2025
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