IRD and tax free allowances

IRD are currently looking at tax free allowances paid to employees and whether they are actually tax free. To be a tax free allowance it has to be a reimbursement of an employment related expense, this can be actual cost or a reasonable estimate (however if it includes a portion above the employment related cost that part is taxable). There are also new rules and time limits to tax free allowances for accommodation, meals, clothing and relocation.

IRD are initially targeting the forestry sector and if that proves successful they are likely to extend their investigations. If  you pay your employees allowances now is a good time to revisit the tax status. If you get it wrong, the employer may need to pay backdated PAYE with added interest and the employee could end up with extra income affecting their Working for Families Tax Credits or Student Loan repayments.

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