Overview

A notional payment is an amount treated as pay for tax and National Insurance purposes, even though it is not actually paid to the employee in cash. Notional payments help employers correctly account for taxable benefits and remuneration that an employee receives, but does not physically collect in their payslip.

BrightPay calculates tax and NICs on these notional amounts, ensuring compliance with HMRC rules and accurate PAYE reporting.

What Is a Notional Payment?

A notional payment is a value that must be included in payroll processing, though it is not paid as cash. This includes certain benefits and awards, or pay items where there is no money paid directly to the employee, but which HMRC class as taxable earnings.

Examples of Notional Payments

1. Company Car Benefit
If an employee receives a company car for personal use, BrightPay will calculate the taxable value as a notional payment. The employee is taxed on the value of the car benefit, even though they have not received cash.

2. Private Medical Insurance
Employers who provide private medical insurance will record its value as a notional payment. The employee pays Income Tax and National Insurance on this value, though no cash payment is made.

3. Shares or Share Options
If an employee is awarded shares or share options as part of their remuneration, the value can be treated as a notional payment. The taxable amount is calculated and processed in payroll, without an actual cash transaction.

4. Salary Sacrifice Arrangements
Under salary sacrifice, an employee gives up part of their pay in exchange for a non-cash benefit (e.g. pension contributions). The sacrificed pay may be shown as a notional payment to indicate the value that is still treated as earnings for some tax purposes.

Why Are Notional Payments Important?

• They ensure that tax and National Insurance are correctly calculated on all taxable income, not just cash payments.
• They allow employers to accurately report benefits and other remuneration on Full Payment Submissions (FPS) and forms such as P11D.
• They keep payroll compliant with HMRC requirements.

How Does BrightPay Handle Notional Payments?

BrightPay allows you to record notional payments for benefits, share awards, and salary sacrifice. These are included in PAYE calculations and reporting, ensuring your payroll stays accurate and compliant.

For example, when adding a benefit such as company car or medical insurance, BrightPay records the notional payment so tax and NICs are calculated automatically.

Additional Information

HMRC defines notional payments as earnings treated as paid for PAYE and NICs, even though no cash changes hands. Employers must record and report all taxable notional payments.