Income Tax (Earnings and Pensions) Act 2003 section 710

Notional payments: accounting for tax

Section 710 sets out how employers must account for income tax through PAYE when they make notional payments — that is, non-cash items or deemed payments that count as PAYE income but where no actual cash changes hands from which tax can be deducted.

• When an employer makes a notional payment (such as providing a non-cash voucher, shares, or other benefits treated as PAYE income), they must deduct the income tax due from any actual cash payments made to the employee during the same income tax period
• If actual cash payments in the period are insufficient to cover the full tax due on the notional payment, the employer must account directly to HMRC for the shortfall within 14 days of the end of the income tax period
• Any tax the employer deducts from actual payments or accounts for directly to HMRC in respect of the notional payment is treated as tax deducted against the employee's income tax liability at the time the notional payment was made
• Where legislation treats a notional payment as having been made retrospectively — before the relevant Act was passed — special timing rules apply, effectively shifting the deadlines forward to run from the date the Act received Royal Assent