6. TC - Employment Income Flashcards
Lay out the employment income pro forma
Salary Bonus/commission Benefits Reimbursed expenses Cash Vouchers XX
Less
Allowable deductions
Expenses incurred wholly, exclusively and necessarily
Contributions to e’ers occupational pension scheme
Subscriptions to prof bodies
Charitable donations- payroll deduction scheme
Travel and subsistence expenses
Use of own car- mileage allowance
Total = E’ment income
How is employment income assessed? (What basis)
Receipts basis
When are earnings deemed to err received?
Deemed to be received the earlier of
- The actual payment date
- The date on which the indiv became entitled to the payment
When are non-monetary earnings deemed to have been received for taxes?
When the benefit has been received
When are there additional rules on directors remuneration recognition and why? What are these rules?
There are extra rules as they can manipulate the timing of payments.
They are deemed to have received earnings on the earliest of:
- The actual payment date
- Date on which the indiv became entitled to the payment
- Date on which the earnings are credited in the accs
- Last day of the period of acc if the earnings are determined before the end of the period
- Date on which earnings are determined if they are determined after the end of the acc period
When is remuneration for directors recognised?
They are deemed to have received earnings on the earliest of:
- The actual payment date
- Date on which the indiv became entitled to the payment
- Date on which the earnings are credited in the accs
- Last day of the period of acc if the earnings are determined before the end of the period
- Date on which earnings are determined if they are determined after the end of the acc period
TYU1: Pedro, director of ABC received a bonus of £400k on 15 Oct 19.
The bonus related to the results of the comp for y/e 30 June 19
It was credited to Pedro in the acc on 4 July 19 following a board meeting on 25 June 19 which decided that the e’ees were entitled to payment on 4 July 19.
Advise wen the bonus is assessable as e’ment income
As a director of the company, P is regarded as receiving the bonus on the earliest of the following dates
Actual payment date: 15 Oct 19
Date entitled 4 July 19
Credited in the accounts: 4 July 19
Bonus determined: 25 June 19 which is within y/e 30 June 19
Therefore relevant date is 30 June 2019 (i.e. end of period of acc)
Therefore bonus is taxable on 30 June 19
When are expenses incurred by an employee allowable deductions?
- The e’ee s obliged to incur and pay the expenses
- The expense is wholly, exclusively and necessarily in the perf of duties fo the e’ment
Give some examples of deductible expenses for employees
- professional subscription fees
- a proportion of expenses if required to work from home
- necessary tools, uniforms, protective clothing, (flu rate deduction available)
- e’ees cash contributions into an occupational pension scheme (ever contributions are an exempt benefit)
How are reimbursed expenses taxed?
Where an e’ee is reimbursed expenses by the employer, the amount received is taxable income
An exemption applies where the e’ee would be able to claim a tax deduction for the business-related exp under the rules for deductible expenses e.g. travel exp, prof subs
Where the expense is partly allowable and partly disallowable, the the exemption can be applied to the allowable part
When are travel expenses allowable?
An e’ee may deduct travel and subsistence expenses if they were necessarily incurred in the perf of their duties
Travel between home and work isn’t an allowable expenses, with some exceptions
Is travel between home and work an allowable expense?
No, but there are some exceptions
- If the e’ee has no normal place of work, travel costs between home and work are allowable
- If e’ees home is their normal place of work, travel between home and other work locations are allowable
- If the e’ee has a temporary workplace (no more than 24 months) travel costs between home and work are allowable
When are entertaining expenses allowable?
The treatment depends upon the type of expenses reimbursed
TYU2: Gavin works for an accounting firm in Essex. He is sent to work in Barry (Wales) for 18 months
Neil is a plumber and works 3 days a week in London and 2 days a week in barry
Bryn is a salesman who works 1 day in Barry office and spends the rest of his time visiting customers.
State whether the travel from home to Barry is deductible for Gavin, Neil and Bryn
Gavin: Barry is a temporary workplace (less than 24 months) therefore deductible
Neil: both Barry and London are his permanent workplaces therefore not deductible
Bryn: Barry office is his permanent workplace therefore not deductible
How are entertaining expenses treated that are allowable when reimbursed directly?
Exempt income for the employee
Therefore no deduction from e’ees income
Reimbursed amount is a disallowed expenses for the e’er
How are entertaining expenses treated that are specific entertaining allowances?
Included as income for e’ee
Deduct entertaining expenses incurred from e’ees income
Full allowance is a disallowed expense for the ever
What does SMRS stand for?
Statutory Mileage Rate Scheme
Describe the SMRS
It applies to e’ees or volunteers using their own car/van/bike for business travel an receiving mileage allowance/payments for business travel from employers
TYU3: State whether the following expenses are deductible in calculating taxable earnings
£100/month subscription to golf club solely used for entertaining clients
No deduction for membership fee (not ‘necessary’ for perf of duties)
But any actual expenses reimbursed (e.g. a meal at the clubhouse) would be exempt
TYU3: State whether the following expenses are deductible in calculating taxable earnings
£450 fees by tax acc to CIOT
Deduction of £450 as professional sub
TYU3: State whether the following expenses are deductible in calculating taxable earnings
£20 train ticket from home to normal place of work
No deduction
TYU3: State whether the following expenses are deductible in calculating taxable earnings
£200 general round sum allowance which £150 spent on entertaining
No deduction, full £200 will be taxable on the e’ee
TYU3: State whether the following expenses are deductible in calculating taxable earnings
£250 new suit for office
No deduction0 not WEN for perf of duties
TYU3: State whether the following expenses are deductible in calculating taxable earnings
£100 specific monthly entertainment allowance of which £80 is usually spent on entertaining
£80 deduction
Balance will be taxable on the e’ee
TYU3: State whether the following expenses are deductible in calculating taxable earnings
£200 for e’ee home telephone bill. £40 of bill was for business calls
£20 was for the line rental
£40 for the business calls is exempt
The £140 for pvte calls and £20 for line rental are taxable
Are mobile phones for private use exempt benefits from a charge in employment income?
Yes
