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Advanced Tax 20/21 > Ch 2: Employment > Flashcards

Ch 2: Employment Flashcards

1
Q

How do you distinguish whether you are an employee or self employed?

A

Employee

  • Contract of service
  • Receive taxable earnings + pay tax under PAYE

Self-employed

  • Contract for services
  • Pay tax on profits for a tax year
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2
Q

What 9 tests are applied to distinguish between being employed to self-employed?

A
  • Control over the work + power to decide when work is performed
  • Obligation to accept work
  • Ability to hire subordinates
  • Financial risk/reward
  • Who provides the equipment
  • Wording of the contract
  • Sick pay, holiday pay
  • Wearing a uniform
  • Job title - integral positions usually employee
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3
Q

How do you calculate the company car taxable benefit?

A

(List price - capital contribution) x CO2%) x n/12 - (running cost contribution)

*List price NOT what the company paid
*CO2% = (CO2 given - 95)/5 = X + 23% (base line) Always Round DOWN
(Above 95 = adjust)
*Doesn’t apply to pool cars

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4
Q

What is the maximum % applied for CO2 %?

A

37%

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5
Q

What is the diesel not certified % for CO2%?

A

4%

If certified no need to add 4%

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6
Q

How do you calculate the private fuel taxable benefit on a company car?

A

£24,100 x CO2 %

Any partial contributions toward the cost of fuel does NOT reduce the taxable amount

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7
Q

What is the company van taxable benefit?

A

£3,430 (+£655 if private fuel provided)

*Incidental private use (i.e. commuting) is ignored

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8
Q

How can you tell if accommodation is job related (3 things)?

A
  • necessary
  • improves performance and customary to provide
  • Provided for personal security
  • NOT a taxable benefit
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9
Q

How do you calculate the taxable benefit on job-related accommodation if the employer OWNS the property?

A

Annual value* + (Cost** - £75k) x 2.5%) x n/12 - employee contributions

  • Annual value given in Q
  • *Cost or MV (MV if >6yrs between date of purchase and employee moving in)
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10
Q

How do you calculate the taxable benefit on job-related accommodation is the employer RENTS the property?

A

Higher of (annual value, rent paid) - employee contributions

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11
Q

What happens with living expenses?

A

Living expenses are the cost to the employer so they are taxable benefits.

e. g. you pay £2000 council tax, you add to your EI
* If accommodation is job-related the benefit is restricted to a max of 10%

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12
Q

What is included in living expenses (5 things)?

A

electricity, phone, TV licence, repairs, decoration

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13
Q

When is a payment received by an employee on termination of employment fully taxable?

A
  • Payment as reward for services
    (fee to not work at a competitor)
  • Compensation for loss of office which was either a contractual entitlement or there was a reasonable expectation of payment
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14
Q

When is the first £30,000 of a lump sum payment exempt?

A

Discretionary payments - “ex gratia payments”/compensation payment

  • statutory redundancy reduces the £30,000 exemption
  • if a payment attracts this exemption then the whole payment is exempt from NIC
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15
Q

When is a payment received by an employee on termination of employment fully taxable?

A
  • Payment as reward for services
    (fee to not work at a competitor)
  • Compensation for loss of office which was either a contractual entitlement or there was a reasonable of payment
    *Tax as EI in NSI
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16
Q

What type of reward for services are there?

A
  • signing bonus
  • gardening leave
  • payment for not working at competitor
  • holiday pay
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17
Q

When do the anti-avoidance rules apply (3 things)?

A
  • If an individual provides services to a client via a PSC
  • If it is a relevant engagement
  • The individual had >5% interest in the company
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18
Q

Anti-avoidance rules apply to remove the tax savings from using a PSC if (3 things):

A
  • If an individual provides services to a client via a PSC
  • If it is a relevant engagement
  • The individual had >5% interest in the company
19
Q

When do the anti-avoidance rules apply to remove the tax savings from using a PSC (3 things)?

A
  • If an individual provides services to a client via a PSC
  • If it is a relevant engagement
  • The individual has >5% interest in the company
20
Q

List six main exempt benefits:

A
  • Employer pension contributions (any type)
  • First £8000 of removal costs (as long as they relate to relocation costs)
  • One mobile phone
  • Loans < £10,000
  • Trivial benefit costing < £50
  • < £55/ week towards child care (£28 for higher rate, £25 for additional rate)
21
Q

What does a typical employment income calc look like?

A

Salary
Bonus
Benefits
Less: allowable deductions

22
Q

What are some allowable deductions? (7 main ones)

A
  • Employee contribution into occupational pension scheme
  • Professional subscriptions
  • Employment related insurance
  • Travel costs (not from home to work unless on secondment)
  • Deficits on mileage allowances
  • Charity payments
  • Cost of any share acquired under an approved SIP
23
Q

How do you calculate the statutory approved mileage allowances?

A 
Received x
Allowed  (x)
            = (x)/x
x = add to EI
(x) = deduct from EI

*For NIC purposes a flat rate of 45p/mile is used irrespective of actual mileage

24
Q

What is the statutory amount for a motorcycle?

A

24p/mile

25
Q

What is the statutory amount for a bicycle?

A

20p/mile

26
Q

What are some examples of allowable expenses? (3 main ones)

A
  • Business calls from private phone
  • Annual deductions for protective clothing
  • £4/ week to cover light and heat etc. if working from home
27
Q

How do you calculate the taxable benefit on other assets for private use?

A

20% of the market value when first provided

28
Q

What happens if the employee subsequently buys the private use asset?

A

The additional taxable benefit is the GREATER of:

  • MV at time of employee acquisition
  • Original MV less the cumulative taxable benefit to date for the employee
29
Q

How do you calculate the taxable benefit on loans?

A

(loan value x 2.5%) - actual interest

30
Q

How do you calculate the loan value?

A

Calculate using the strict and average method and choose the LOWER of the two

31
Q

How do you calculate the loan value using the STRICT method?

A

Calculate interest @ 2.5% month by month on the outstanding balance

32
Q

How do you calculate the loan value using the AVERAGE method?

A

(Opening loan balance + closing loan balance)/2

time apportion if loan only outstanding part of the year

33
Q

How do you calculate the taxable benefit on vouchers exchangeable for goods/services?

A

They equal the cost to the employer and are subject to NICs

34
Q

What are the tax advantage schemes?

A

CSOP, EMI, SAYE

35
Q

What are the tax impacts of a tax advantage scheme?

A

Upon grant - no tax impact
Upon exercise - no tax impact
Upon sale - a chargeable gain (sales - exercise price)

36
Q

What are the tax impacts of a non-tax advantage scheme?

A

Upon grant - no tax impact
Upon exercise - employee suffers income tax and NIC (MV - exercise price)
Upon sale - a chargeable gain (sales - MV @ exercise price)

37
Q

What is the criteria for anti-avoidance rules against PSCs (IR35) (3 things)?

A
  • An individual provides services to a client via a personal service company
  • The individual would be treated as an employee of the client if not for the PSC - a ‘relevant engagement’
  • The individual has >5% interest in the company
38
Q

What is the impact IR35?

A
  • A salary is deemed to have been paid which you add to employment income
39
Q

How do you calculate the deemed salary (5 steps)?

A
  1. Take 95% of fees received by relevant engagement company from the client (ignore the other 5%)
  2. Deduct any salary AND employers NIC on payments made to individual
  3. Deduct any employer pension contributions made
  4. Deduct expenses that would be allowable for the employee = A (gross deemed payment - deduction from trade income of company; reduces TTP)
  5. Deduct employers NIC from A (13.8%/113.8% xA)
    = deemed salary (added to shareholders employment income)
40
Q

What is the maximum value of options permitted under the 3 tax advantaged share schemes?

A 
CSOP = £30k in MV of shares/employee
EMI = £250k in MV of shares/employee (£3m overall)
SAYE = < £500 from net income saved p/m
41
Q

What is the maximum exercise period for an EMI scheme and the maximum MV of the shares?

A

< 10 years after grant, £250,000

42
Q

If shares are kept in a share incentive plan for 6 years what are the tax consequences when they are withdrawn?

A

No IT/NIC as they have been held for at least 5 years

43
Q

What is the max value of the shares into a trust (SIP)?

A

£1800 p/a for employee bought shares

£3600 p/a for free shares or employer matching shares

44
Q

What is the tax treatment of money withdrawn from a trust (SIP)?

A

The treatment differs per length held:
<3yrs: IT + NIC on value when taken out
3-5yrs: IT + NIC on lower of value @ in/out
>5yrs: Tax free if sold immediately

Advanced Tax 20/21 (23 decks)

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