5. Employment income Flashcards
What does an employment income pro-forma look like?
Salary X Bonus X Benefits X Reimbursed expenses X Cash vouchers X Less: allowable deductions (X)
What expenses are classed as allowable deductions? (5)
- Pension contributions
- Charitable donations
- Travel and subsistence
- Professional body fees
- Business miles on private car (own car)
What basis is employment income on?
What figures can this be chosen from?
For directors, what other figures are there?
Receipt basis.
Earlier of the following:
- Date of payment
- Date it was supposed to be paid
- When credited in company accounts
- Date earnings are determined
What are the rules for travel expenditure?
- not given on ordinary or private travel
- not given on travelling between two separate employments
- given on temporary workplace providing not there longer than 24 months.
When are AMAPs valid?
To employees doing business miles in their personal cars.
What benefits are tax exempt? (14)
- trivial benefits (i.e. birthday pressies)
- employers contribution to pension schemes
- subsidised on-site canteen facilities
- car parking
- mobile phone
- green benefits
- parties (£150 a head per year)
- workplace nurseries
- reallocation and removal (£8000)
- working away overnight (£5 UK, £10 overseas)
- home working household expenses: £4 a week
- loans
- loans more than 10K without beneficial interest rate
- job-related accommodation
- medical treatment to enable them to go back to work (£500)
What is a relocation and removal expense?
How much is tax exempt?
What are the qualifying expenses for relocation and removal? (4)
Expense incurred with a new employment opportunity that requires new residence as commuting would not be viable.
£8000 tax exempt
Qualifying expenses:
- costs of selling a house
- travel when looking for new house
- removal expenses
- interest on bridging loans whilst employee owns two homes.
What is the tax difference between a voucher and a credit token?
A voucher is a taxable benefit at the price at which they were bought to the employer.
Credit tokens are a taxable benefit at the employee
If your employer pays for/towards your living accommodation, how do you calculate the taxable benefit?
What is the relevant proforma?
How do this change if the employer acquired the property more than 6 years ago?
Basic charge is the higher of:
- annual value of the property (given to you in exam)
- rent paid by the employer
Additional charge for expensive accom:
Cost of providing the accom (cost + capital improvements) - 75,000 x ORI (2.5%)
Cost of providing accom proforma:
MV or AV of property: X
Capital improvements from PRIOR YEARS X
= Cost of providing accomodation
If held prop. 6+ years, measure at market value not at cost.
When is it classed as job related accommodation? (3)
What tax benefits does this have?
- where necessary for proper performance of employee duties
- where it is customary
- where there is a threat to security
How do you calculate car benefit when paid by employer?
Actual car:
List price x appropriate %
Less: employee contributions for the private use of the car
Fuel: £24,100 x appropriate %
How do you calculate van benefits?
This is in ur tax reference book so can skip if struggling.
Flat rate £3,430 for private use of van.
Mileage: £655
Beneficial loans:
Show the proforma for calculating the taxable benefit.
Explain how the two methods differ and which ones to use and when.
Are loan write offs a taxable benefit?
Use both methods in exam unless stated otherwise.
Proforma:
Interest that would have been payable at ORI X
Interest that has been paid (X)
= Taxable benefit
Methods differ in interest payable (top line of proforma)
Average method: balance at start of year and balance at end of year/2
Accurate method: calculates interest monthly
Loan write offs are a taxable benefit.
How do you tax an asset which is being lent to an employee?
Depends on whether asset is owned.
If the employer owns the asset: 20% of market value at purchase.
If the employer rents the asset: greater of the above and the rent paid.
Both methods reduced by contributions made by employee.
How do you work out the taxable benefit for gifting an asset?
Dependent on when gifted.
Immediately: taxed at cost to employer
Gifted after use: taxed at the HIGHER of:
- market value at gifting
- market value at purchase less benefits already received (including period in current tax year before gift)
