Paying a furloughed employee’s bills
Q. One of our furloughed employees has run into financial problems and while we can’t afford to put him back on full pay we have decided to help him by making a payment towards his credit card bill. How should the payment be dealt with in our payroll system?
A. There are a few aspects of the arrangement you need to take care with. First, if you’re claiming and paying the employee the Coronavirus Job Retention Scheme grant you can choose to top this up to the level of the employee’s normal salary. Paying the employee’s credit card bill will count towards the top up. For payroll purposes, the payment counts as earnings on which Class 1 NI is payable (employers’ and employees’). However, the payment is not salary for PAYE tax purposes. Instead, you must report it as a benefit in kind on FormP11D (for 2020/21).
You should make the employee aware of the tax and NI consequences so that he can choose to notify HMRC now, so that it can collect the tax due by adjusting his tax code for the current year. Alternatively, he can delay telling HMRC until after 5 April 2021, in which case his code will be adjusted (and the tax collected) in a later year.
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