We have recently come across instances of clients paying personal invoices on behalf of their employees, for example paying their phone bill or for car repairs. However, there are tax implications that employers who are paying personal employee invoices should be aware of.
- Where private expenditure incurred by an employee is invoiced to the employee but is paid by the employer it is treated as employee remuneration and is subject to PAYE (the amount paid needs to be grossed up to calculate the PAYE payable), and must be included in the employer’s IR348 “Employer Monthly Schedule”.
- Where private expenditure is incurred by an employee but the invoice is made out to and paid by the employer the payment is subject to Fringe Benefit Tax.
Note that there are no tax consequences where an employee is reimbursed for business expenses incurred on behalf of the employer.