Employer paid personal tax advice: is it taxable

Q: How does this work for a director?

Illustration only. A company engages its accountants to prepare its finance director's personal tax return and pays their fee of £600. The contract is between the company and the accountants. The company reports £600 on the director's P11D and pays Class 1A of £90 (15% of £600). The director pays tax on £600 through Self Assessment or a tax code adjustment. At the higher rate that is £240. If instead the director had engaged the accountants and the company paid the invoice, Class 1 National Insurance would be due through payroll rather than Class 1A. Our guide to companies paying directors' bills covers the corporation tax and loan account angles.

Usually yes. When an employer pays for an employee’s personal tax return or personal tax advice, the cost is a taxable benefit or earnings, because no exemption covers it: the welfare counselling exemption expressly excludes advice on tax, and the pensions advice exemption only covers advice about pensions, up to £500 a year. How it is reported depends on who contracts with the adviser, and a PAYE Settlement Agreement is only available if the payment is minor, irregular or impracticable.

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Why is paying for an employee’s tax advice taxable?

The starting point is the benefits code. HMRC’s guide 480 (chapter 4, paragraph 4.1) says all benefits provided to an employee, or to their family or household, count as employment income. Paragraph 4.3 lists the main types, including any non exempt expenses or liabilities incurred by the employee and paid direct by the employer.

A personal tax return, or advice on an employee’s own tax affairs, is a service for the employee as an individual. If the employer pays for it, the employee receives something of value because of the employment. That is the case whether the work is a one off piece of advice on selling a property, preparation of an annual Self Assessment return, or help with a disclosure to HMRC. The employer’s motive, such as wanting a senior manager to spend less time on personal admin, does not change the result.

A cash payment is clearer still. If the employee pays the adviser and the employer reimburses them, the reimbursement is simply additional earnings.

Is there any exemption that covers tax advice?

Two exemptions come close, and both stop short.

Welfare counselling

Section 210 of ITEPA 2003 and SI 2000/2080 exempt some welfare counselling, such as help with stress, debt problems or bereavement. HMRC’s guidance at EIM21845 says that for this purpose welfare counselling does not include advice on finance (other than debt problems), advice on tax, advice on leisure or recreation, or legal advice.

This is important for employee assistance programmes. EIM21845 explains that if a programme includes some services that are outside the exemption, strictly the exemption does not apply to any of it, because there is no basis for apportionment. HMRC suggests separating services that clearly fall outside into a separate scheme. A programme that offers bespoke personal tax advice therefore puts the tax free status of the whole programme at risk.

Pensions advice

Section 308C of ITEPA 2003 exempts the first £500 in a tax year of relevant pensions advice provided to an employee, or paid for or reimbursed by the employer, if the scheme is open to all employees, or all those at a location, or to those who have reached a minimum qualifying age or meet an ill health condition (EIM21803). The advice can include general financial and tax issues relating to the employee’s pension arrangements. Anything over £500 is taxable, and the exemption does not cover advice unrelated to pensions, such as preparing a tax return or planning a share sale. Our guide to the pensions advice exemption covers the conditions in detail.

HMRC’s pensions guidance at EIM21802 also draws a distinction that is a useful guide more generally: information given to employees as a group, such as a presentation all staff can attend, is unlikely to create a benefit charge, while fees paid to an external provider for one to one sessions generally do.

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How is the benefit reported?

GOV.UK’s guidance on employees’ personal bills sets out three routes, depending on who arranges the service and who pays:

Arrangement	What the employer does
Employer contracts with the adviser and pays them	Report the cost on P11D and pay Class 1A National Insurance
Employee contracts with the adviser, employer pays the adviser	Report the cost on P11D for tax, and add it to pay for Class 1 National Insurance through payroll
Employee pays the adviser and is reimbursed	Add the reimbursement to pay and deduct PAYE tax and Class 1 National Insurance

HMRC’s P11D guidance says that where the contract is between the employer and the supplier, the cost goes in the services supplied section. For 2025 to 2026 benefits, the P11D and P11D(b) were due by 6 July 2026 and Class 1A had to be paid by 22 July 2026 (19 July by cheque). For 2026 to 2027 the Class 1A rate is 15%. Our guides to P11D and P11D(b) and to Class 1 or Class 1A explain the mechanics.

Employers can instead payroll benefits. HMRC has confirmed that payrolling becomes mandatory from April 2027 for company cars, car fuel, vans, van fuel and private medical benefits. Other benefits can be payrolled voluntarily, with registration opening in November 2026 and closing on 5 April 2027 for 2027 to 2028.

Can a PAYE Settlement Agreement cover it?

A PSA lets the employer pay the tax and National Insurance on an employee’s behalf in one annual payment. GOV.UK says it can only cover items that are minor, irregular or impracticable. Irregular items are those not paid at regular intervals and that employees have no contractual right to. Wages, high value benefits such as company cars, and cash payments such as bonuses and round sum allowances cannot be included.

A one off payment for advice that is not part of the employee’s package, such as help with the tax consequences of an unusual event, may fit the irregular category. An annual tax return fee paid every year as part of an executive’s contract is unlikely to, because it is regular and contractual. Applications must be made by 5 July after the first tax year the PSA covers, and the tax and Class 1B National Insurance are due by 22 October (19 October by post). The employer pays tax on a grossed up basis, and Class 1B at 15% for 2026 to 2027 on both the benefit and the tax. See our guide to PAYE Settlement Agreements.

What about advice the employer needs for itself?

Not every adviser’s fee involving an employee is a benefit. The charge applies to benefits provided to the employee. Work the employer commissions to meet its own obligations, such as working out the PAYE it must operate for an internationally mobile employee, is a cost of running the business.

The line is often blurred for international assignees. HMRC’s PAYE Manual at PAYE81740 notes that employers with tax equalised employees normally provide a professional adviser or in house specialist to deal with the employee’s UK tax affairs, and EIM77040 confirms that tax the employer pays under equalisation is itself earnings. Where one firm prepares both the employer’s payroll calculations and the employee’s personal return, asking for the work to be invoiced separately makes it easier to value the personal element.

How does this work for a director?

Illustration only. A company engages its accountants to prepare its finance director’s personal tax return and pays their fee of £600. The contract is between the company and the accountants.

The company reports £600 on the director’s P11D and pays Class 1A of £90 (15% of £600).
The director pays tax on £600 through Self Assessment or a tax code adjustment. At the higher rate that is £240.
If instead the director had engaged the accountants and the company paid the invoice, Class 1 National Insurance would be due through payroll rather than Class 1A.

Our guide to companies paying directors’ bills covers the corporation tax and loan account angles.

What mistakes come up most often?

Treating the fee as a business expense and assuming that makes it tax free for the employee.
Bundling personal tax advice into an employee assistance programme and losing the welfare counselling exemption for the whole programme.
Relying on the £500 pensions advice exemption for a general tax return.
Putting a regular, contractual tax return fee into a PSA.
Using the wrong National Insurance class because nobody checked whose name was on the engagement letter.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.