3: Employment Income Flashcards
What four things are included in Employment Income?
- Salary (gross amount)
- Tips
- Bonus (received on the earlier of when the bonus is paid, or the individual is entitled to payment. End of tax year is irrelevant information)
- Taxable benefits (always apportion)
What do you do with taxable benefits where there is no specific rule?
An employee is taxed on the marginal cost to the employer (so the cost of one extra)
MINUS any contributions made by the employee.
What is the taxable amount of vouchers?
For non-cash vouchers, or credit tokens (like credits cards), it is:
- cost to the employer, less any amount paid by the employee
For cash vouchers:
- amount for which the voucher can be exchanged
What are the conditions for trivial benefits?
A benefit is trivial when it meets all three of these requirements:
- cost of benefit does not exceed £50
- it is not cash or a cash value
- it is not provided in recognition of services
What are the 10 key exempt benefits?
Free/subsidised canteen
Health screening and medical check up (1pa)
Bicycles and cycling safety equipment
Car parking space at/near work
Employer’s pension contributions
Mobile phone (1 per employee)
£150pa for social events. More than this, all is taxed
Insignificant use of computers
Removal and relocation expenses of up to £8,000
Job-related accommodation
What are the conditions of ‘job-related’ accommodation?
Necessary for performance of duties ie. level-gate keeper
Customary to be provided, ie. prison governor
Provided for security, ie. soldier barracks
When will a director qualify for job-related accommodation?
Director owns no more than 5% shares in the company
The director is a full-time working director (unless the company is a charity/NFP)
What are the six taxable benefits?
Vouchers
Living accommodation
Cars for private use (petrol/diesel/hybrid)
Private fuel
Vans
Assets for private use (owned/rented)
What is the GOLDEN RULE for calculating all taxable benefits?
Time apportion
Deduct employees contributions (apart from for private fuel)
How do you calculate taxable benefit for RENTED accommodation?
Higher of:
- annual value
- rent paid by the employer
How do you calculate the taxable benefits for accommodation OWNED by the employer?
House under £75k: just annual value
House over £75k:
Annual value
PLUS
(‘Cost’ - £75,000) x 2.25
What is ‘cost’, when calculating the value of owned accommodation?
Generally: original value of property
If employer owned for more than six years before employee moved in,
the MARKET VALUE at date the employee moved in is used instead
+
Any capital improvements made between the ‘cost’ date and up to the start of the tax year in the question. NOT this tax year!
Are living expenses in private accommodation (heating, lighting etc) also a taxable benefit?
Yes!
Cost to employer less any employee contributions
How to calculate the benefit of cars provided for private use?
List price - Co2 emissions%
For Co2 emissions:
(Rounded down emissions) - 75
——————————————-
5
Add back on 20
A cap of 37%
What’s the cap on emissions percentage for any car?
37%
What is RDE2 and how does it affect diesel cars?
If diesel cars MEET it, process is exactly the same as for petrol cars.
If diesel cars DO NOT meet it, add another 4% on when calculating emissions.
How are taxable benefits different with hybrid cars?
The percentage to use is determined on the battery range of the car, not the emissions
How is private fuel calculated?
£27,800 x Co2 emissions%
Time apportion
DO NOT DEDUCT employees contributions to the fuel, unless they pay for ALL of the fuel used on the car, then there is no benefit
How is the taxable benefit calculated for vans?
Just a flat rate!
£3,960 for the van
£757 for the fuel
Ignore any insignificant private use, include any van used for travel between home and work
How are assets for private use calculated?
Rented:
Higher of: annual value and rent paid by employer
Owned:
20% x market value when provided for private use
Use MUST BE SIGNIFICANT
What is full payment submission?
How an employer submits Real Time Information about PAYE
Must be done on or before the day the employer is paid
Employer Payment Summary done if employer reclaims stuff…
What is voluntary payrolling?
Employees opting to process benefits through the payroll. Means the relevant tax for these is deducted under PAYE
What is a P60, P11D, P45?
P60: annually, gross pay, tax deducted, NICs paid by employee and employee
To the employee
P11D: details of the benefits provided to each employee. Not payrolled ones. The cash equivalents of these benefits
To HMRC
P45: when an employee leaves. Summary of taxable pay, tax and NICs
No info needs to be sent to HMRC
Critical details on PAYE payment dates?
Bank payment: 19th of each month
Electronic: 22nd of each month
Employers with at least 250 employees MUST make payment electronically
Employers with no more £1,500 in total tax payments monthly can pay quarterly
What two forms are issued by HMRC in relation to tax codes?
Form P2 - sent to the employee. Details of how the PAYE code has been calculated
Form P9(T) - sent to the employer. Gives code only
What is in the ‘allowances’ and ‘deductions’ sections when calculating a tax code
Allowances:
PA
Transfer of PA from spouse
Adjustment for overpaid tax
Deductions:
Taxable benefits
Transfer of PA to spouse
Adjustment for underpaid tax
How is the tax code added? What is the process?
Take the net figure of allowances and deductions
Remove the last digit
Add the appropriate letter
1257L most common!
What happens to the tax code when someone has underpaid?
The figure of allowance in the tax code has to be reduced by how much tax they owe
Make sure to times the amount of tax owed by the individuals highest rate of tax before taking it away away from the personal allowance
BRPT - 100/20
HRPT - 100/40
ARPT - 100/45
How is the process different for K then other tax codes?
Take total net figure
Remove last digit
DEDUCT 1
Add K at the start
