Hi Sarah

Look at it this way:

1. You provide a taxable benefit.

2. The tax an employee pays depends on their tax code and their total earnings, "earnings" meaning their salary plus anything else taxable such as bonuses, commission and taxable benefits.

3. An employee only pays tax if their total earnings take them over their threshold for tax, and their threshold depends on their tax code.

4. When the payroll is run, the tax employee's code is applied to their total earnings for the payroll period and the payroll spits out the result.

So when the employee is in the unpaid portion of her maternity leave, her earnings drop, possibly to the value of this taxable benefit only. The tax she should pay will self-adjust to her new earnings figure. She may quite possibly get a tax rebate, but your payroll should sort this all out automatically.

I think you are thinking of this as if the tax on the benefit is a fixed amount. It isn't. As Ray says, tax is cumulative. If someone has a pay rise, their tax goes up. If they have a pay cut, it goes down. If someone has a one-off bonus payment, their tax jumps up for that month but comes back down in the next month if there isn't another bonus payment. At the year end, all the fluctuations during the year should have been taken into account so that the tax paid for the year is correct for their total taxable earnings. So when you ask what happens to the tax on this taxable benefit, it's like asking about the tax on a specific £5 note in a pay packet and what will happen to the £5 note if their pay is cut to that one bank note.