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Overview
Payments Made on Behalf of Employee covers situations where an employer settles costs for goods or services that provide a personal benefit to the employee. This includes scenarios such as paying household utility bills, private school fees, season tickets for travel, or professional subscriptions and accountancy fees. The key distinction is that the employer meets the cost directly or reimburses the employee for something that is not wholly and exclusively a business expense.
Within the BIK module, Payments Made on Behalf of Employee is handled through three Event Types, each defining how the payment flows and how the benefit is treated for tax and National Insurance purposes:
Employer arranges and pays the supplier directly - the employer both sources and settles the cost.
Employee arranges, employer pays the supplier directly - the employee chooses the goods or services, but the employer settles the payment.
Employee arranges and pays, employer reimburses - the employee incurs the cost and is reimbursed by the employer.
Important:
- This benefit type should not be confused with direct salary advances or reimbursements of wholly business-related expenses.
- This benefit type does not relate to a single item in the GOV.UK Expenses and Benefits A–Z list, like Assets Transferred, but instead encompasses a range of personal benefits for which the employer pays or reimburses costs on behalf of the employee, each defined and recognised by HMRC as a reportable taxable benefit.
- Consider if the benefit being applied is a Trivial Benefit, there may be no Income Tax or National Insurance Liability due.
This article explains how these events should be applied with BIK module considerations and how to calculate the benefit value. See below for some other articles to assist with preparing and processing benefits in the BIK module:
- For creating this benefit type at company level, go to Configuring Company Benefits
- For applying benefits to employee records, go to Applying Benefits to Employees: Manual & Data Imports
- For how this looks in Payroll when processing, go to How Payrolled Benefits are Reflected in Payroll
- For National Insurance and Best Practices, please read the National Insurance and Income Tax Handling for Payrolled Benefits article
Contents
- BIK Module Configurations and Considerations
- Event Type: Employer arranges the goods or services and pays the supplier directly
- Event Type: The employee arranges the goods or services, but employer pays the supplier directly
- Event Type: The employee arranges and pays the supplier, but employer reimburses them
BIK Module Configuration and Considerations
Payments Made on Behalf of Employee and its different event types can all be treated either as a one-off event or as a benefit held over a period of time, depending on the nature of the benefit being provided.
Please Note: If the benefit is a Trivial Benefit but you still wish to record this in the BIK module, then consider using the "Other" Benefit type, also selecting the event type that attracts no Income Tax or National Insurance Liability. See here for more information: BIK Module - Other Items]
One-Off Events
Examples of one-off payments include bills or ad-hoc reimbursements for services or goods. The full taxable value arises at the point the payment or reimbursement occurs.
Company-Level Configuration
When configuring this benefit at company level:
Set the benefit to retain until the end of the tax year for leavers to ensure the taxable value is always fully applied.
Since this is a single transaction, do not configure pro-rating based on duration of employment.
Employee-Level Configuration
When configuring this benefit at employee level, within the current version of the BIK module, Benefit Start and Benefit Stop dates are used to calculate pro-rated values. While this logic is appropriate for ongoing benefits, it does not automatically align with the treatment of one-off events.
Enter the full value of the payment as the benefit value
Set the Benefit Start and Benefit Stop dates to the full tax year to avoid incorrect pro-rating.
With this configuration, even if the employee leaves, the full taxable value of the payment will be taxed correctly.
Time-Based or Recurring Benefits
Some payments, such as professional memberships or subscriptions, are linked to a period of time rather than a single transaction. The taxable value can be calculated proportionally based on the duration the employee holds the benefit.
Company-Level Configuration
Retain the benefit, or not all, just be aware that prorating will occur if the employee is made a leaver unless the benefit is retained until the end of the tax year.
Employee-Level Configuration
Enter the full value of the payment as the benefit value
Set Benefit Start and Benefit Stop dates to reflect the period the employee is entitled to the benefit
The module will pro-rate the cash equivalent based on the benefit value, and on the number of days the benefit is held for
Note: If the benefit is time-based, but a prorated benefit value is entered instead (Benefit providers may provide a prorated amount already), then determine a full tax year benefit value, or treat as a one-off event as above.
Ongoing Enhancements
The current release of the BIK module fully supports compliant processing of this benefit type for income tax purposes. While certain behaviours, such as date-based pro-rating, require deliberate configuration for this benefit type, the correct legislative outcome can be achieved through the setup approach outlined above.
Employers can therefore operate this benefit accurately by applying the prescribed configuration.
Future enhancement phases will further refine benefit-specific behaviour to reduce manual intervention, increase automation, and more closely reflect the distinct legislative treatment of one-off benefit events such as Assets Transferred.
Event Type: Employer arranges the goods or services and pays the supplier directly
This Event Type covers situations where the employer both sources the goods or services and pays the supplier directly on behalf of the employee. While the benefit arises from a specific payment, it is typically payrolled across the tax year for income tax purposes. Employer-only Class 1A National Insurance is due and reported via the P11D(b) at year-end:
Income Tax Liability |
National Insurance Liability |
Payrolled, across the Tax Year |
Class 1A (Employer Only), P11D(b) |
Working out the Taxable Amount
The taxable value is the full amount paid by the employer for the goods or services, minus any contribution made by the employee.
If an employer organises and pays £2,500 for a training course on behalf of the employee, and the employee contributes £500, the calculation is:
£2,500
(Amount paid by the Employer)
minus
£500
(Amount paid by the employee, as a contribution toward the taxable benefit)
equals
£2,000
£2,000 is the taxable amount (or Cash Equivalent) to apply to the employee as a benefit.
Event Type: The employee arranges the goods or services, but employer pays the supplier directly
This Event Type covers situations where the employee selects the goods or services, but the employer settles the payment directly with the supplier. While the benefit arises from a specific payment, it is typically payrolled across the tax year for income tax purposes. Employer and Employee Class 1 National Insurance is due, needing to be settled in full in the next available payroll.
Income Tax Liability |
National Insurance Liability |
Payrolled, across the Tax Year |
Class 1 (Employer & Employee), due in full in the next pay period |
Because this event type attracts Class 1 National Insurance, please read the National Insurance and Income Tax Handling for Payrolled Benefits article.
Working out the Taxable Amount
The taxable value is the full amount paid by the employer for the goods or services, minus any contribution made by the employee.
If an employee organises a training course and the employer pays £2,500 on behalf of the employee, and the employee contributes £500, the calculation is:
£2,500
(Amount paid by the Employer)
minus
£500
(Amount paid by the employee, as a contribution toward the taxable benefit)
equals
£2,000
£2,000 is the taxable amount (or Cash Equivalent) to apply to the employee as a benefit.
Event Type: The employee arranges and pays the supplier, but employer reimburses them
This Event Type covers situations where the employee pays the supplier directly and is reimbursed by the employer. Because the employer reimburses cash, income tax is due immediately and in full, and Class 1 National Insurance applies for both employer and employee in the next payroll period.
Income Tax Liability |
National Insurance Liability |
Immediate, due in full in the next pay period |
Class 1 (Employer & Employee), due in full in the next pay period |
Because this event type attracts Class 1 National Insurance, please read the National Insurance and Income Tax Handling for Payrolled Benefits article.
Working out the Taxable Amount
The taxable value is the full amount paid by the employer for the goods or services, minus any contribution made by the employee.
If an employee organises and pays for a training course and the employer reimburses the employee in the amount of £2,500, and the employee contributes £500, the calculation is:
£2,500
(Amount paid by the Employee and Reimbursed by the Employer)
minus
£500
(Amount paid by the employee, as a contribution toward the taxable benefit)
equals
£2,000
£2,000 is the taxable amount (or Cash Equivalent) to apply to the employee as a benefit.
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