UHY Ross Brooke Chartered Accountants

Are you making payments to third parties for referral fees?

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By Chris Davies

During a meeting with a potential new client recently, a question was posed which their existing accountant had been unable to answer.

It’s probably quite a common situation, although perhaps ignored by many. The question was “We give non-cash vouchers in return for referrals from third parties. Do we need to account for tax and NI on these payments to third parties?”

Having clarified that these were not being paid to the company’s own employees, I explained that as the provider of these awards they could enter into a ‘taxed award scheme’ (TAS) and account for the tax and class 1a NIC due on the award. The individual will then not usually need to pay any tax on the award.

A TAS can be established by contacting HMRC Incentive Award Unit, and once it is set up the provider must make a return accounting for either basic or higher rate on the award.

If the provider accounts for tax at a higher rate, a certificate must be provided to each individual outlining the grossed up value and the amount of tax accounted for. For a basic rate TAS, certificates only need be provided to individuals who require them, but it is good practice to provide them to all who benefit. The employee should include the grossed up value and the tax accounted for it on their self assessment return.

I was pleased to see that the potential client was taking its reporting responsibilities seriously but I do wonder how many businesses are even aware that there is a tax issue when making payments to third parties for referral fees.

Next steps

Get in touch with us if you’re looking for advice on referral benefits or general tax.

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