This guide explains the tax and National Insurance contributions (NICs) position if an employee receives an award from a third party rather than from their employer.
Typically, third-party awards are provided as an incentive by someone other than the employer who has an interest in the employee’s performance. For example, an employee of a car dealership might receive an award from a car manufacturer rather than from their direct employer.
The rules in this area are complex. To go direct to more detailed information, choose the link below to ‘Technical guidance’.
On this page:
An employee is awarded any of the following by someone other than their employer:
The third party must deduct PAYE tax from the award and pay it to HMRC.
The employer must deduct and pay Class 1 NICs on the combined value of:
The value to use is the amount of cash awarded, or the cash value of vouchers or other items.
An employee receives an award from someone other than their employer. The award is neither cash nor something that can be exchanged or surrendered for cash.
Unless the employer has arranged the third-party award (in which case see the ‘Exceptions’ section below) then the third party must:
Class 1A NICs will be due - and payable by the third party, as outlined above - if the award consists of non-cash vouchers or benefits in kind. But in some instances, Class 1 NICs will be due instead – for example, if an employee’s personal bills are paid on their behalf. If Class 1 NICs are due, then it is the employer’s responsibility to deduct and pay them, not the third party’s.
If the award consists of vouchers, then the value to use is the cost to the third party of providing the vouchers.
If the award is of something other than vouchers, then:
If an award from a third party has been arranged by the employer:
For further advice on dealing with the tax and NICs relating to third-party awards, call HMRC’s Employer Helpline on 08457 143 143. It’s open 8.00 am to 8.00 pm Monday to Friday and 8.00am to 5.00pm on Saturday and Sunday.
