Payroll rewards schemes: The tax questions employers should ask
Minhaz writes for the Association of Bureau Managers
Payroll rewards platforms can sound appealing: put your wage payments through a platform and collect air miles or travel points along the way.
But what does your business have to pay for those rewards, and what tax questions sit behind the arrangement?
Our founder, Minhaz Moosa, explores these issues in an article published by the Association of Bureau Managers (ABM): Payroll rewards schemes: the two tax questions hiding underneath.
Drawing on approaches Intelligent Payroll has received and conversations with clients, Minhaz explains why employers need to look beyond the points being offered.
Two different arrangements, two different questions
Payroll rewards schemes do not all work in the same way. Minhaz’s article separates two tax questions that employers should understand before signing up.
1. Is VAT being charged correctly?
Some arrangements involve invoicing a business for its wage bill, adding VAT and encouraging the business to reclaim it.
As Minhaz explains, outsourcing payroll administration does not, by itself, turn your own employees’ wages into a taxable supply to your business. An invoice showing VAT is not enough to establish that you can recover it.
The article examines a recent tribunal decision illustrating why the actual employment relationship matters.
2. Could personal rewards create a taxable benefit?
Other platforms charge a fee to generate rewards, without adding VAT to wages.
Here, the question changes: if the company pays an additional fee but the points go into a director’s or employee’s personal account, could that create a taxable benefit?
The answer depends on the arrangement. Employers should have that question assessed before assuming the rewards are tax-free.
Look at the costs as well as the points
Even before tax, the rewards deserve a closer look.
Minhaz gives an example where a £20,000 monthly payroll attracts a £320 rewards fee. If the resulting points are redeemed for £200 of travel, the business has paid more than the value received.
Understand what you are paying for, who benefits, how payroll funds are held and what tax advice supports the arrangement.
Read Minhaz’s full article on the ABM website →
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Get in touch with Intelligent Payroll to discuss your payroll payment process and identify any questions that need specialist advice.
Email hello@intelligentpayroll.co.uk or call 0161 524 7696.
This summary provides general information. The tax treatment of any arrangement depends on its facts; seek appropriate professional advice before acting.
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