As of 1 March 2019, all contributions made by employers to funds provided by Bargaining Councils should be treated as a fringe benefit and are therefore subject to tax. These funds include, but are not limited to sick and holiday funds for employees that belong to the Bargaining Council. Note that if the fund administered by the Bargaining Council is a retirement fund, the taxation rules for retirement funds that are effective from 1 March 2016 (and that provide for a tax deduction to reduce the taxable benefit value) are applied.
In some instances, both you (the employer) and the employee contribute to the fund. The taxable fringe benefit is equal to your contribution and should now be reported on the IRP5/IT3(a) under the following new codes:
- 4584: Employer contributions to a Bargaining Council Fund
- 3833: Taxable benefit iro Employer contributions to a Bargaining Council Fund
Employee-paid contributions do not impact PAYE (they are not tax deductible) and therefore are not reported.
What action do you need to take?
If you set up these contributions using a Custom Employer Contribution item, you need to update this custom item on your payroll or Bargaining Council template to a Custom Benefit item. This will ensure that the contribution is treated as a taxable fringe benefit.
A new checkbox has been added which allows you to indicate that the Custom Benefit item is a Bargaining Council Item. This ensures that the new tax codes are applied to the custom item.
If you have many companies and need to automate this process, please get in touch with our Support team to discuss possible solutions.
If you have any further queries, please do not hesitate to contact us.