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Introduction

Round sum allowances are amounts paid by an employer to an employee to cover future expenditure by the employee. Round sum allowances differ from the reimbursement of actual expenses, scale rate payments and fixed rate deductions.

Round sum allowances

Round sum allowances are normally taxable and subject to NIC as earnings because they are just money available to the employee to be spent. Employers should include the amount in the employee’s payroll and subject the amount to PAYE. The courts have held that round sum allowances, even if they are intended for use on certain business-related expenditure, are taxable as earnings.

The case of Noble held that a round sum expense allowance is taxable as part of the employee’s earnings. In that case, a policeman received a cash allowance for buying civilian clothing. It was held to be a taxable extension of the policeman’s salary. It did not matter that he was expected to spend the money in a particular way.

If the round sum allowance is then used to pay for expenses which meet with