2:3 Employment Income Flashcards
Why is the distinction between Employment and self-employment important?
Makes a big difference in amount of tax payable
Tax payers prefer self employment as deductions for expenses usually more generous & NIC different (cheaper)
How to tell if you’re are employed or self-employed?
Contract of Service = Employment
v
Contract for services = Self Employment
Other factors that affect if you’re self employed or employed? (8)
Degree of control exercised
Whether they must accept further work
Whether the other party must offer further work
Whether they provide their own equipment
“” they hire their own helpers
What degree of financial risk they take on
Whether they can profit from sound management
“” they can work when they choose
How does the PAYE scheme work?
The employer deducts an amount of tax from your income on a regular basis to reflect annual tax liability of the employee
A P60 is given each year to employees to explain tax deducted on their behalf
When are deductions allowable?
When they are wholly, exclusively and necessarily in performance of the duties of employment
Summary of tax allowances on mileage (3)
Employees get a tax free allowance when they use their own car for employer business
cars - 45p up to 10k miles, 25p on excess miles
When amounts paid to the employee are below limits, the shortfall can be claimed as deductible expense or vice verse
What are the tax allowances on payments on termination of employment?
Exempt payments on bodily harm, lump sum from approved pension schemes, state redundancy payments
Contractual entitlements are taxable in full
Termination payments are partly exempt - first £30,000
What are some exempt benefits?
In-house sports facilities
Relocation costs up to £8,000
Trivial benefits (tax free gift) up to £300 per employee per year
How is taxable benefit calculated?
On lower paid employees the benefit is taxed on a cash equivalent basis
On higher paid employees the benefit is taxed at the cost of provision.
What are the benefits taxable on all employees? (5)
Vouchers Entertainment Long service awards Work place nurseries - no tax benefit if run by employer Accommodation
How is job related accommodation taxed?
Taxed on related expenses if paid by employer e.g. heating
Use of furniture @20% of cost per year
The benefit is restricted to 10% of net emoluments (salary)
How is non-job related accommodation taxed?
Taxed on the same as the job related one
+
Annual value
and Additional expensive property charge
Taxable benefits on a company car
A company car that is used by an employee is considered a benefit even if its mostly used for business purposes.
the benefit is based on the emissions levels x the list price when new (- contributions)
Fuel benefit is a flat rate of £24,100 x CO^2 %
No deduction for contribution to private fuel unless fully reimbursed
Other benefits provided
Scholarships - if given to family members the employee is taxed on cost
Use of assets - cost x 20%
Loans - taxed on difference between official IR rate (3%) and rate actually charged
- No tax under £10,000
- Everything taxable if over £10,000
Rules on pensions
Annual allowance of up to £40,000
Lifetime allowance of £1,000,000
