Ch 2: Employment Flashcards
How do you distinguish whether you are an employee or self employed?
Employee
- Contract of service
- Receive taxable earnings + pay tax under PAYE
Self-employed
- Contract for services
- Pay tax on profits for a tax year
What 9 tests are applied to distinguish between being employed to self-employed?
- 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
How do you calculate the company car taxable benefit?
(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
What is the maximum % applied for CO2 %?
37%
What is the diesel not certified % for CO2%?
4%
If certified no need to add 4%
How do you calculate the private fuel taxable benefit on a company car?
£24,100 x CO2 %
Any partial contributions toward the cost of fuel does NOT reduce the taxable amount
What is the company van taxable benefit?
£3,430 (+£655 if private fuel provided)
*Incidental private use (i.e. commuting) is ignored
How can you tell if accommodation is job related (3 things)?
- necessary
- improves performance and customary to provide
- Provided for personal security
- NOT a taxable benefit
How do you calculate the taxable benefit on job-related accommodation if the employer OWNS the property?
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)
How do you calculate the taxable benefit on job-related accommodation is the employer RENTS the property?
Higher of (annual value, rent paid) - employee contributions
What happens with living expenses?
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%
What is included in living expenses (5 things)?
electricity, phone, TV licence, repairs, decoration
When is a payment received by an employee on termination of employment fully taxable?
- 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
When is the first £30,000 of a lump sum payment exempt?
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
When is a payment received by an employee on termination of employment fully taxable?
- 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
What type of reward for services are there?
- signing bonus
- gardening leave
- payment for not working at competitor
- holiday pay
When do the anti-avoidance rules apply (3 things)?
- 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
Anti-avoidance rules apply to remove the tax savings from using a PSC if (3 things):
- 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
When do the anti-avoidance rules apply to remove the tax savings from using a PSC (3 things)?
- 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
List six main exempt benefits:
- 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)
What does a typical employment income calc look like?
Salary
Bonus
Benefits
Less: allowable deductions
What are some allowable deductions? (7 main ones)
- 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
How do you calculate the statutory approved mileage allowances?
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
What is the statutory amount for a motorcycle?
24p/mile
What is the statutory amount for a bicycle?
20p/mile
What are some examples of allowable expenses? (3 main ones)
- Business calls from private phone
- Annual deductions for protective clothing
- £4/ week to cover light and heat etc. if working from home
How do you calculate the taxable benefit on other assets for private use?
20% of the market value when first provided
What happens if the employee subsequently buys the private use asset?
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
How do you calculate the taxable benefit on loans?
(loan value x 2.5%) - actual interest
How do you calculate the loan value?
Calculate using the strict and average method and choose the LOWER of the two
How do you calculate the loan value using the STRICT method?
Calculate interest @ 2.5% month by month on the outstanding balance
How do you calculate the loan value using the AVERAGE method?
(Opening loan balance + closing loan balance)/2
time apportion if loan only outstanding part of the year
How do you calculate the taxable benefit on vouchers exchangeable for goods/services?
They equal the cost to the employer and are subject to NICs
What are the tax advantage schemes?
CSOP, EMI, SAYE
What are the tax impacts of a tax advantage scheme?
Upon grant - no tax impact
Upon exercise - no tax impact
Upon sale - a chargeable gain (sales - exercise price)
What are the tax impacts of a non-tax advantage scheme?
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)
What is the criteria for anti-avoidance rules against PSCs (IR35) (3 things)?
- 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
What is the impact IR35?
- A salary is deemed to have been paid which you add to employment income
How do you calculate the deemed salary (5 steps)?
- Take 95% of fees received by relevant engagement company from the client (ignore the other 5%)
- Deduct any salary AND employers NIC on payments made to individual
- Deduct any employer pension contributions made
- Deduct expenses that would be allowable for the employee = A (gross deemed payment - deduction from trade income of company; reduces TTP)
- Deduct employers NIC from A (13.8%/113.8% xA)
= deemed salary (added to shareholders employment income)
What is the maximum value of options permitted under the 3 tax advantaged share schemes?
CSOP = £30k in MV of shares/employee EMI = £250k in MV of shares/employee (£3m overall) SAYE = < £500 from net income saved p/m
What is the maximum exercise period for an EMI scheme and the maximum MV of the shares?
< 10 years after grant, £250,000
If shares are kept in a share incentive plan for 6 years what are the tax consequences when they are withdrawn?
No IT/NIC as they have been held for at least 5 years
What is the max value of the shares into a trust (SIP)?
£1800 p/a for employee bought shares
£3600 p/a for free shares or employer matching shares
What is the tax treatment of money withdrawn from a trust (SIP)?
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
