Chapter 5 - Employment Income

Question 1

How do you calculate the taxable benefit of assets available for private use?

Answer 1

Taxable benefit = 20% x MV when first provided
If subsequently acquired, additional taxable benefit is:
Greater of:
1) MV at time of employee acquisition
2) Original MV - cumulative taxable benefit to date for employee.

Question 2

How do you calculate employment income?

Answer 2

Money earnings + benefits in kind - allowable deductions

Question 3

What are the allowable deductions against employment income?

Answer 3

Employee contributions into occupational pension scheme
Relevant professional subscriptions
Allowable travel costs paid by employee
Deficits on mileage allowances
Charitable payments under GAYE
Other expenses incurred wholly, exclusively and necessarily for purposes of employment.

Question 4

How are reimbursed expenses treated?

Answer 4

Not included in employment income

Question 5

What is the statutory mileage allowance?

Answer 5

If employee makes business journeys, employer can pay a tax free allowance of up to a statutory amount.
If payments exceed statutory amount, employee is taxed on the surplus.
For Class 1 NIC purposes, a flat rate of 45p per mile is used.

Question 6

How are employees taxed on loans from their employers?

Answer 6

Taxed in 2 different situations:
1) Cheap loan (pay less than official rate of interest)
2) Any part of loan is written off
Taxable Benefit = loan value x 2.25% - actual interest paid

Question 7

How do you calculate ‘loan value’?

Answer 7

Strict method : calcualte interest a@2.25% on month by month basis of outstanding balance
Average Method: (Opening loan balance + closing loan balance) / 2
^Time apportion if loan was only outstanding part of year).
Use both methods, then choose one with lower benefit
No taxable benefit if does NOT exceed £10k throughout tax year.
If any point exceeds this, whole benefit is taxable.
If part of loan written off, value of write off is taxable as employment income.

Question 8

What is the optional remuneration arrangements (salary sacrifice) scheme?

Answer 8

Where employee takes reduced salary rather than receiving certain benefits.
Taxable value of benefits where cash has been sacrificed is higher of:
1) Taxable value (using benefits code)
2) value of cash sacrificed
Taxable amount is treated as benefit and subject to class 1A NIC
Doesn’t include salary sacrifice in return for pension conts, pension advice, childcare provision, cycle to work, ultra low emiss cars