Higher-Paid Employees
Definition
Under UK tax law, a “higher-paid employee” is defined as an individual earning more than £8,500 per annum. This amount includes remuneration, benefits, and reimbursed expenses. Although set in 1979, this threshold remains unchanged and is now below the minimum wage.
For higher-paid employees or directors (for whom there is no earnings limit), employers must report all benefits to HM Revenue and Customs (HMRC) using form P11D. These benefits are assessed at the cost to the employer, with special rules applying to certain benefits such as company cars.
Examples
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Salary and Benefits: An employee with a base salary of £9,000 per year and additional benefits such as a company car (£2,000 annual benefit) and health insurance (£800 annual benefit) would be classified as a higher-paid employee.
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Annual Reimbursement: A director earning a salary of £100,000 per annum who also receives £15,000 per annum in reimbursements for business expenses will have all benefits reported on form P11D.
Frequently Asked Questions (FAQs)
Q: What is included in the £8,500 threshold?
- A: The £8,500 threshold includes total remuneration, benefits in kind (e.g., company cars, private healthcare), and reimbursed expenses.
Q: How is the £8,500 threshold calculated?
- A: It is calculated based on the total amount received during the tax year, including salary and the assessed value of non-cash benefits.
Q: Is there any update on the £8,500 limit?
- A: As of now, the limit remains at £8,500 and has not been updated since it was set in 1979.
Q: What is a P11D form?
- A: The P11D form is a document used by employers to report taxable benefits provided to employees earning more than the higher-paid threshold.
Q: Are directors subject to the £8,500 threshold?
- A: No, there is no earnings limit for directors; all benefits must be reported regardless of their earnings.
Related Terms with Definitions
- Remuneration: Compensation received in exchange for employment, including salary, bonuses, and benefits.
- Benefits in Kind: Non-cash benefits provided to employees, such as company cars, medical insurance, or loans.
- Minimum Wage: The lowest wage per hour that can be legally paid to an employee.
- Company Car: A vehicle provided by the employer for both business and personal use, considered a taxable benefit.
- Reimbursed Expenses: Expenses incurred by employees for business purposes that are repaid by the employer.
Online References
- HM Revenue and Customs (HMRC) - Form P11D Guide
- UK Government - Introduction to PAYE and Payroll
- ACAS - Employee Benefits and Tax
Suggested Books for Further Studies
- “UK Tax Legislation: Evidence and Practice” by Jane Clare.
- “Taxation: Policy and Practice” by Andy Lymer.
- “Bloomsbury Professional Tax Annuals: Employee Benefits 2021/22” by Ken Moody.
Accounting Basics: “Higher-Paid Employees” Fundamentals Quiz
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