SE11205 - Incentive Award Schemes: Tax Liability on Incentive Awards

General

Where an employer meets the tax payable on a non-cash incentive award given to a direct employee by entering into a PAYE Settlement Agreement (PSA), the award is not chargeable to tax under Schedule E on the employee. PSA’s cannot be used to pay the tax on cash incentive awards. PSA’s are covered at SE11270.

Apart from non-cash awards covered by a PSA, all incentive awards made to employees are chargeable on them under Schedule E.

Cash Awards

In the case of cash awards the amount chargeable under Section 19(1)1 ICTA 1988 is the amount of the award.

Non-cash Awards

In the case of non-cash awards the amount chargeable depends upon the nature of the award:

• vouchers used

Where awards are obtained through the use of vouchers, the charge for all employees is the full cost to the provider of making the award (see SE16140)

• vouchers not used