How do Taxed Award Schemes work?

I have made an award to a third-party employee. Is this taxable and how do I report it?

Taxed Award Schemes (TASs), also known as Incentive Award Schemes, are a way of rewarding or incentivising third party employees or in some cases your own employees with awards such as vouchers, merchandise or holidays.

The schemes can vary from incentives based on sales targets to national promotions.

What are my PAYE and National Insurance (NI) obligations?

When a company provides an award to employees of another company, the provider becomes liable to pay Class 1A National Insurance Contributions (NICs) on the value of the benefit provided. 

You can enter a voluntary arrangement where you can pay tax on the awards provided to an individual, therefore leaving them ‘free of tax’. 

Please note that if you pay Class 1A NIC and, for example, Basic Rate Tax on behalf of the individual and the individual who received the award is a Higher Rate taxpayer, it is the individual’s responsibility to declare the difference on their tax return. 

Payments to Ex-Employees

If you are thinking about making a cash payment to ex-employees, these cannot be put through a TAS and must be payrolled. 

As the third-party provider, you must deduct tax at source after seeking advice from your own tax office. You must also advise the direct employers of the payments made, so they can account for Class 1 NICs. 

How do I apply for a TAS?

You will need to contact the Incentive Award Unit at HM Revenue & Customs to get this scheme set up. We can help you to do this and help with all the reporting requirements. 

Further information

If you have any queries or require our assistance in reviewing the benefits you provide to your employees, please contact your normal Bishop Fleming contact or a member of the Employer Solutions team.