Querying taxable benefit

MIZZ12

Hi,
I work for a company that offers Critical illness cover - the premiums are 100% deducted from my earnings, so none of the costs are company funded.  However, I have just twigged that they are also including these premium payments as a taxable benefit.  This sounds completely wrong - as how can something I already pay for be then also treated as a taxable benefit?!  The reason i thought to ask on this forum is that I fully expect our offshore HR dept to send me a stock answer fobbing me off in response to me raising this as a query and I just find it unbelievable that a large company (and a Bank to boot!) could get this so wrong, if I am correct.  Please could you let me have your thoughts as to whether I am talking correctly or barking up the wrong tree!?  Many thanks.

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Dazed_and_C0nfused

How are they being taxed?  Does your tax code have a deduction for medical insurance/benefit?

MIZZ12

Hi, they are showing as a taxable benefit on my payslip, hence I am paying extra tax that way.  No there is no deduction via my tax code for this. 

Lorian

is it subsidised and you are being taxed on the part the company is paying. That's quite common.

zagfles

Have you actually worked out that you're paying extra tax? What is probably happening is that you get a deduction in the left column of your payslip (this is usually deductions before tax & NI are applied). Then the "benefit" is added back on as a "payrolled benefit" so it actually makes no difference to the amount you are taxed on. It's deducted then added back on.

You might ask why do it this way. It's because it saves you NI, you pay NI on your pay minus the benefit, but you pay tax on your pay (the benefit makes no difference).

You will need to work out your tax and NI to prove this. Post your payslip inc tax code if you don't know how to do this.

MIZZ12

No, none of the costs are company funded. 

MIZZ12

zagfles said:

Have you actually worked out that you're paying extra tax? What is probably happening is that you get a deduction in the left column of your payslip (this is usually deductions before tax & NI are applied). Then the "benefit" is added back on as a "payrolled benefit" so it actually makes no difference to the amount you are taxed on. It's deducted then added back on.

You might ask why do it this way. It's because it saves you NI, you pay NI on your pay minus the benefit, but you pay tax on your pay (the benefit makes no difference).

You will need to work out your tax and NI to prove this. Post your payslip inc tax code if you don't know how to do this.

Thanks zagfles, I will need to revisit my payslip again but I thought it looks like they have taken the cost of the insurance off my pay, as in reduced my actual earnings plus they have taxed me extra via the taxable benefit although none of the payments are company funded. 

zagfles

MIZZ12 said:

zagfles said:

Have you actually worked out that you're paying extra tax? What is probably happening is that you get a deduction in the left column of your payslip (this is usually deductions before tax & NI are applied). Then the "benefit" is added back on as a "payrolled benefit" so it actually makes no difference to the amount you are taxed on. It's deducted then added back on.

You might ask why do it this way. It's because it saves you NI, you pay NI on your pay minus the benefit, but you pay tax on your pay (the benefit makes no difference).

You will need to work out your tax and NI to prove this. Post your payslip inc tax code if you don't know how to do this.

Thanks zagfles, I will need to revisit my payslip again but I thought it looks like they have taken the cost of the insurance off my pay, as in reduced my actual earnings plus they have taxed me extra via the taxable benefit although none of the payments are company funded. 

It's probably a "salary sacrifice" type scheme, where they reduce your pay and treat it as a company funded benefit. So eg if your pay was £2000 and the benefit was £100, instead of applying tax/NI on £2000 and then taking the £100 benefit cost off your net pay (ie you paying for it in the normal way), they take £100 off your actual earnings, so you get taxed/NI'ed on £1900, but then they add the £100 back onto your taxable pay as a payrolled benefit so you get taxed on £2000.

So by doing it that way, you get taxed the same but you pay less NI.

Jeremy535897

zagfles said:

MIZZ12 said:

zagfles said:

Have you actually worked out that you're paying extra tax? What is probably happening is that you get a deduction in the left column of your payslip (this is usually deductions before tax & NI are applied). Then the "benefit" is added back on as a "payrolled benefit" so it actually makes no difference to the amount you are taxed on. It's deducted then added back on.

You might ask why do it this way. It's because it saves you NI, you pay NI on your pay minus the benefit, but you pay tax on your pay (the benefit makes no difference).

You will need to work out your tax and NI to prove this. Post your payslip inc tax code if you don't know how to do this.

Thanks zagfles, I will need to revisit my payslip again but I thought it looks like they have taken the cost of the insurance off my pay, as in reduced my actual earnings plus they have taxed me extra via the taxable benefit although none of the payments are company funded. 

It's probably a "salary sacrifice" type scheme, where they reduce your pay and treat it as a company funded benefit. So eg if your pay was £2000 and the benefit was £100, instead of applying tax/NI on £2000 and then taking the £100 benefit cost off your net pay (ie you paying for it in the normal way), they take £100 off your actual earnings, so you get taxed/NI'ed on £1900, but then they add the £100 back onto your taxable pay as a payrolled benefit so you get taxed on £2000.

So by doing it that way, you get taxed the same but you pay less NI.

If they add it back on as cash, that would negate the salary sacrifice?

MIZZ12

zagfles said:

MIZZ12 said:

zagfles said:

Have you actually worked out that you're paying extra tax? What is probably happening is that you get a deduction in the left column of your payslip (this is usually deductions before tax & NI are applied). Then the "benefit" is added back on as a "payrolled benefit" so it actually makes no difference to the amount you are taxed on. It's deducted then added back on.

You might ask why do it this way. It's because it saves you NI, you pay NI on your pay minus the benefit, but you pay tax on your pay (the benefit makes no difference).

You will need to work out your tax and NI to prove this. Post your payslip inc tax code if you don't know how to do this.

Thanks zagfles, I will need to revisit my payslip again but I thought it looks like they have taken the cost of the insurance off my pay, as in reduced my actual earnings plus they have taxed me extra via the taxable benefit although none of the payments are company funded. 

It's probably a "salary sacrifice" type scheme, where they reduce your pay and treat it as a company funded benefit. So eg if your pay was £2000 and the benefit was £100, instead of applying tax/NI on £2000 and then taking the £100 benefit cost off your net pay (ie you paying for it in the normal way), they take £100 off your actual earnings, so you get taxed/NI'ed on £1900, but then they add the £100 back onto your taxable pay as a payrolled benefit so you get taxed on £2000.

So by doing it that way, you get taxed the same but you pay less NI.

Thankyou Zagfles, I think I understand now.  Thanks so much for your explanations, very much appreciated.   I will be interested so see how our so called HR department responds to my query!  

MIZZ12

Jeremy535897 said:

zagfles said:

MIZZ12 said:

zagfles said:

Have you actually worked out that you're paying extra tax? What is probably happening is that you get a deduction in the left column of your payslip (this is usually deductions before tax & NI are applied). Then the "benefit" is added back on as a "payrolled benefit" so it actually makes no difference to the amount you are taxed on. It's deducted then added back on.

You might ask why do it this way. It's because it saves you NI, you pay NI on your pay minus the benefit, but you pay tax on your pay (the benefit makes no difference).

You will need to work out your tax and NI to prove this. Post your payslip inc tax code if you don't know how to do this.

Thanks zagfles, I will need to revisit my payslip again but I thought it looks like they have taken the cost of the insurance off my pay, as in reduced my actual earnings plus they have taxed me extra via the taxable benefit although none of the payments are company funded. 

It's probably a "salary sacrifice" type scheme, where they reduce your pay and treat it as a company funded benefit. So eg if your pay was £2000 and the benefit was £100, instead of applying tax/NI on £2000 and then taking the £100 benefit cost off your net pay (ie you paying for it in the normal way), they take £100 off your actual earnings, so you get taxed/NI'ed on £1900, but then they add the £100 back onto your taxable pay as a payrolled benefit so you get taxed on £2000.

So by doing it that way, you get taxed the same but you pay less NI.

If they add it back on as cash, that would negate the salary sacrifice?

Hi Jeremy, they don't add it back to my pay as such, but they have increased the taxable benefit... not sure if that helps explain?