2. Employment Income Flashcards
An employee has a …
Contract of service
A self-employed person has a…
Contract for services.
What is the mutuality of obligations?
- Employers are under obligation to offer work to the individual.
- Employees are under obligation to carry out work from their employer.
What is an element of control?
- An employee is committed to work a specific number of hours at fixed times and places.
- The self-employed cannot choose their hours of work and where it will be completed.
What are key factors for employed people?
- Must complete the work themselves.
- Does not take any financial risks (Employers loss).
- Equipment provided by employer.
- Sick days and holidays paid for
What are the key factors for self-employed people?
- Can substitute others to do the work for them.
- Take financial risks.
- Has to have own equipment.
- No holiday or sick pay.
- Individual has the opportunity to profit.
What are money earnings?
Salaries, wages, commissions, bonuses, fees and tips.
What are taxable benefits?
Benefits provided by the employer e.g. private use of a company car or accommodation.
What are termination payments?
Payments made on termination of employment (redundancy).
What is employment income taxed?
In the fiscal year in which it is received or entitlement arises - whichever is earliest.
If the employee is a director, employment income is treated as received on?
The earliest of the following:
- Date of payment
- Date entitlement arises
- Date the amount is credited in the company’s accounts
- End of the companies period of account.
- Date the amount is determined
What is the calculation of employment income?
Gross Income + Assessable value of benefits - Allowable deductions
On what form are the assessable benefits submitted?
The P11D form
How do you calculate benefits?
- Calculate the benefit
- Prorate the benefit
- Deduct any contributions the employee has made towards the benefit (if applicable)
How do you calculate a company car benefit for a company car with private use?
List price X Relevant %
What happens to discounts when calculating the company car benefit?
All discounts are ignored, the full list price of the vehicle is used.
What happens to capital contributions when calculating a company car?
Capital contributions of up to £5000 are allowable to reduce the list price.
What happens to contributions toward the running cost of a company car?
A regular contribution is deducted from the value of benefit.
How do you round levels of emissions?
You always round down.
What happens when the period of benefit is less than 12 months for a company car?
The benefit is time apportioned.
What is the maximum percentage of car benefit
37%
What happens if there is no private use on the company car?
There is no taxable benefit.
What are the conditions for a pooled car?
- Used by more than one individual
- Private use is incidental
- It is not kept overnight at or near the home of an employee
How are Hybrid cars benefit calculated?
The same as normal cars.
What happened to accessories and modifications of cars?
- If they are added before the car has been made available then they are added to the list price.
- If they are added later they are included in the list price for the whole tax year they were added if greater than £100.
- If they are to make the car usable for work or disability modifications the they are not added to the list price.
What happens if a car is more than 15 years old?
If the market value is more than £15,000 and more than the list price, use the market value instead.
What is the fuel benefit calculations?
£24,100 X Relevant %
What happens to an employee contribution towards the cost of fuel?
It doesn’t do anything, the taxable amount is still the same calculation.
When is there a van benefit?
If the van is provided for private use. If private use is between work and home, this won’t be classed as a taxable benefit.
How is the van benefit calculated?
There is a fixed taxable benefit of £3430 per annum.
What is the van fuel benefit?
£655 per annum.
What is the restriction for a zero emission van?
60%
60% X £3,430 = £2,058
And there is no fuel benefit.
What is the calculation for job related accommodation?
Nothing, job related accommodation is an exempt benefit.
What are the criteria for job related accommodation?
- Necessary; the employer is a representative occupier
- Improves performance or is customary in that particular job
- The accommodation is provided for personal security
What is the benefit calculation for non-job related accommodation?
Annual value + additional charge if cost > £75,000
What is the employee taxed on if the employer owns the property or if the employer rents the property?
Owns - annual value (deemed rent)
Rents - the greater of the rent paid by the employer and the annual value
What is the additional charge calculation if the property cost > £75,000?
(Cost - £75,000) X 2.5%
Cost includes the original cost of the property plus any improvements prior to the start of the tax year.
What happens if the employer purchased the property more than 6 years prior to the employee moving in?
The market value is substituted for the cost figure.
What happens if an employee contributes to the annual rent?
The contribution is deducted no matter what the situation.
What happens when an employer pays living expenses for job related accommodation?
It is a cost to the employer but is capped at 10% of the employees earnings and other non-job related benefits.
What happens when an employer pays living expenses for non-job related accommodation?
It is an expense to the employer.
If furniture is provided the benefit will be classed as an asset made available for private use.
What is the calculation for assets made available for private use?
Market value X 20%
What happens when an asset made available for private use is then subsequently acquired by the employee?
The benefit is the higher of:
- Market value of gift when gifted
- Market value at first use of the asset less any benefits already assessed for use of the asset.
What is the benefit for cash vouchers?
The benefit is the value of the voucher
What is the benefit for non-cash vouchers?
The benefit is the cost of the voucher
What happens to a loan under £10,000?
It is written off.
What is the taxable benefit for a loan?
The benefit is the difference between the interest actually paid and the ‘official rate of interest’ (2.5%)
How do you calculate the loan benefit?
(Average loan X official rate of interest X n/12 (time apportioned)) less: interest actually paid.
What happens if a loan is written off?
A taxable benefit will arise based on the amount written off, this applies to all loans written off.
What are the allowable deductions from taxable benefit?
- Occupational pension schemes (paid gross so full tax relief at source)
- Personal pension schemes (extends brb)
- Charitable donations
- Qualifying travel expenses
- Allowable mileages rates
- Entertaining and subsistence
- Professional fees and subscriptions
- Reimbursement of expenses
What are the allowable mileage rates?
Fist 10,000 miles - 45p per mile Over 10,000 miles - 25p per mile Passenger miles - 5p per mile Motorcycle miles - 24p per mile Bicycle miles - 20p per mile
What is the proforma for employment expenses?
Salary. X
Bonus/commission. X
Benefits in kind. X
X
Less: allowable deductions. X
Occupational pension cont. X
GAYE. X
Travel. X
Fees/subscriptions X
Allowable expenses. X
Employment income. X
