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AAT Level 4 - Personal Tax > 2. Employment Income > Flashcards

2. Employment Income Flashcards

1
Q

An employee has a …

A

Contract of service

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2
Q

A self-employed person has a…

A

Contract for services.

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3
Q

What is the mutuality of obligations?

A
  • Employers are under obligation to offer work to the individual.
  • Employees are under obligation to carry out work from their employer.
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4
Q

What is an element of control?

A
  • 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.
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5
Q

What are key factors for employed people?

A
  • Must complete the work themselves.
  • Does not take any financial risks (Employers loss).
  • Equipment provided by employer.
  • Sick days and holidays paid for
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6
Q

What are the key factors for self-employed people?

A
  • 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.
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7
Q

What are money earnings?

A

Salaries, wages, commissions, bonuses, fees and tips.

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8
Q

What are taxable benefits?

A

Benefits provided by the employer e.g. private use of a company car or accommodation.

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9
Q

What are termination payments?

A

Payments made on termination of employment (redundancy).

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10
Q

What is employment income taxed?

A

In the fiscal year in which it is received or entitlement arises - whichever is earliest.

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11
Q

If the employee is a director, employment income is treated as received on?

A

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
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12
Q

What is the calculation of employment income?

A

Gross Income + Assessable value of benefits - Allowable deductions

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13
Q

On what form are the assessable benefits submitted?

A

The P11D form

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14
Q

How do you calculate benefits?

A
  1. Calculate the benefit
  2. Prorate the benefit
  3. Deduct any contributions the employee has made towards the benefit (if applicable)
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15
Q

How do you calculate a company car benefit for a company car with private use?

A

List price X Relevant %

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16
Q

What happens to discounts when calculating the company car benefit?

A

All discounts are ignored, the full list price of the vehicle is used.

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17
Q

What happens to capital contributions when calculating a company car?

A

Capital contributions of up to £5000 are allowable to reduce the list price.

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18
Q

What happens to contributions toward the running cost of a company car?

A

A regular contribution is deducted from the value of benefit.

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19
Q

How do you round levels of emissions?

A

You always round down.

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20
Q

What happens when the period of benefit is less than 12 months for a company car?

A

The benefit is time apportioned.

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21
Q

What is the maximum percentage of car benefit

A

37%

22
Q

What happens if there is no private use on the company car?

A

There is no taxable benefit.

23
Q

What are the conditions for a pooled car?

A
  • Used by more than one individual
  • Private use is incidental
  • It is not kept overnight at or near the home of an employee
24
Q

How are Hybrid cars benefit calculated?

A

The same as normal cars.

25
Q

What happened to accessories and modifications of cars?

A
  • 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.
26
Q

What happens if a car is more than 15 years old?

A

If the market value is more than £15,000 and more than the list price, use the market value instead.

27
Q

What is the fuel benefit calculations?

A

£24,100 X Relevant %

28
Q

What happens to an employee contribution towards the cost of fuel?

A

It doesn’t do anything, the taxable amount is still the same calculation.

29
Q

When is there a van benefit?

A

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.

30
Q

How is the van benefit calculated?

A

There is a fixed taxable benefit of £3430 per annum.

31
Q

What is the van fuel benefit?

A

£655 per annum.

32
Q

What is the restriction for a zero emission van?

A

60%
60% X £3,430 = £2,058

And there is no fuel benefit.

33
Q

What is the calculation for job related accommodation?

A

Nothing, job related accommodation is an exempt benefit.

34
Q

What are the criteria for job related accommodation?

A
  • Necessary; the employer is a representative occupier
  • Improves performance or is customary in that particular job
  • The accommodation is provided for personal security
35
Q

What is the benefit calculation for non-job related accommodation?

A

Annual value + additional charge if cost > £75,000

36
Q

What is the employee taxed on if the employer owns the property or if the employer rents the property?

A

Owns - annual value (deemed rent)

Rents - the greater of the rent paid by the employer and the annual value

37
Q

What is the additional charge calculation if the property cost > £75,000?

A

(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.

38
Q

What happens if the employer purchased the property more than 6 years prior to the employee moving in?

A

The market value is substituted for the cost figure.

39
Q

What happens if an employee contributes to the annual rent?

A

The contribution is deducted no matter what the situation.

40
Q

What happens when an employer pays living expenses for job related accommodation?

A

It is a cost to the employer but is capped at 10% of the employees earnings and other non-job related benefits.

41
Q

What happens when an employer pays living expenses for non-job related accommodation?

A

It is an expense to the employer.

If furniture is provided the benefit will be classed as an asset made available for private use.

42
Q

What is the calculation for assets made available for private use?

A

Market value X 20%

43
Q

What happens when an asset made available for private use is then subsequently acquired by the employee?

A

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.
44
Q

What is the benefit for cash vouchers?

A

The benefit is the value of the voucher

45
Q

What is the benefit for non-cash vouchers?

A

The benefit is the cost of the voucher

46
Q

What happens to a loan under £10,000?

A

It is written off.

47
Q

What is the taxable benefit for a loan?

A

The benefit is the difference between the interest actually paid and the ‘official rate of interest’ (2.5%)

48
Q

How do you calculate the loan benefit?

A

(Average loan X official rate of interest X n/12 (time apportioned)) less: interest actually paid.

49
Q

What happens if a loan is written off?

A

A taxable benefit will arise based on the amount written off, this applies to all loans written off.

50
Q

What are the allowable deductions from taxable benefit?

A
  • 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
51
Q

What are the allowable mileage rates?

A 
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
52
Q

What is the proforma for employment expenses?

A

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

AAT Level 4 - Personal Tax (11 decks)

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