Until recently, I acted for the employees in these cases, and my involvement was ensuring the proposed agreement was acceptable before passing the employee to an independent lawyer who gave the required advice and (as far as I can recall) invariably issued the invoice to the employer.
A further thought arises: if the lawyer has billed the employee and the employer has paid the bill, is that a BIK?
Caution - may lead to headaches.
Croner-i website gives the following useful information:
A benefit in kind is taxed as earnings if it is money or money’s worth, which includes things that are of direct monetary value to the employee.
Where an employer pays a debt which was owed by an employee to a third party (e.g. an electricity or telephone bill), there is a direct monetary value to the employee who no longer needs to pay that bill personally. This is known as the employee’s ‘pecuniary liability’. There is also a direct monetary value if the employer writes off a loan which it has made to the employee.
The distinction between a pecuniary liability and a benefit-in kind is particularly important for NIC purposes. A benefit in kind is subject to Class 1A (employer only) NICs and is reported for tax on form P11D. A pecuniary liability is also reported for tax on form P11D, but must be subjected to Class 1 (employee and employer) NICs through the payroll.
To decide whether there was an employee’s pecuniary liability, look at the underlying contract. Who was liable to pay the debt? If the answer is ‘the employer’, then it was a benefit in kind. If the answer is ‘the employee’ then it was a pecuniary liability.
If the employer pays an employee’s debt in respect of something for which there is an exemption or for which the employee would have been entitled to an allowable deduction, those exceptions still apply. The employee is only taxed on payments to which the exemption or deduction does not apply.
Example 1
Joan uses her personal mobile phone to make business calls to customers while away from the office from time to time.
Her employer pays the mobile phone bill directly.
The employer is meeting Joan’s pecuniary liability, so the cash equivalent will be taxable (and also subject to Class 1 NICs through the payroll).
In calculating the cash equivalent, Joan may be entitled to an allowable deduction for the cost of the business calls.
Example 2
John also makes business calls to customers while away from the office from time to time, so his employer provides him with a company mobile phone.
His employer pays the mobile phone bill directly.
The employer is meeting its own liability, as it is a company phone. John has a benefit in kind from use of the phone.
John is unlikely to suffer tax because mobile phones are normally an exempt benefit.
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If applicable and the employer wants the employee to suffer no taxes then the following should be considered:
www.gov.uk
