Employee Benefits

Question 1

Opening statement

Answer 1

The… is a taxable benefit arising by reason of their employment.

Question 2

Default treatment

Answer 2

The value of the benefit is its cash equivalent for example the cost of the employer providing that benefit to the employee

Pariculary for in house benefits, the cash equivalent is the marginal cost of providing that benefit to the employer.

This is the case is Peper and Hart 1993 which looked at the cash equivalent of a headteacher sending his son to the school he worked at,

Question 3

Car

Answer 3

List price
Include accessories new
Accessories added after - only if above £100
Minus EE contribution (max £5000)

Non availability (30 day period or more)
EE Contribution

Question 4

Car fuel

Answer 4

Only if employer provides all fuel including private (we are calculating the private element)

Standard £25300 * CO2 %

Pro rata for non availability

Question 5

Van and Van fuel

Answer 5

If has emissions standard £3600

Private fuel =£688 (does not matter if employee contributes also)

Question 6

Accommodation - exempt

Answer 6

Exempt - job related/ necessary for the proper performance of job

If living in job related accommodation bill are a benefit however can not b greater than 10% of other income received from that job

Question 7

Accommodation - taxable benefit (owned by employer)

Answer 7

Owned by employer - the value of the benefit is annual value.
If the property cost the employer more than £75,000 then the amount above £75,000 * HMRC ORI at the start of the year (2%) added to the annual value

If the employer has owned the property for more than 6 years, when calculating the additional yearly rent the market value is used not the cost when they purchased it

Any renovation costs are included however only ones expensed before the start of the tax year

Question 8

Accommodation - taxable benefit (rented by employer)

Answer 8

Higher of:

rent paid by employer
or annual value

Question 9

Bill paid by employer

Answer 9

Taxable benefit, however this does not include renovation/ structural costs

(employer responsibility to keep the house)

Question 10

Loans to EE’s

Answer 10

Loans to employee’s over £10,000 where no interest is charged or interest is below HMRC ORI 2.25% this is a taxable benefit

Two methods to calculate

Average - Compare the loan at the start of the year to the end of the year and divide by 2 *2.25%

Strict - Time apportion the loan * 2.25%

If the strict methid gives a lower result the employee should elect the strict method. HMRC is only likely to disagreee if the strict method gives a distorted result

Question 11

Use of Employers asset

Answer 11

Higher of:

Annual value (MV * 20%)
Cost to employer

minus;
EE contributions
Pro Rata
Just and reasonable if more than one employee uses it

Question 12

Transfer of asset to EE

Answer 12

Higher of;

MV @ date of transfer
MV @ date it was lent to EE minus any contributions (use of asset benefit)

Does not apply to car or homes

Question 13

Transfer of car home or, computer equipment

Answer 13

MV @ date of transfer - cost to transfer

Question 14

Salary sacrifice

Answer 14

The value of the taxable benefit is the higher of the cost to the employer or the amount sacrificed by the employer

Question 15

Which expenses can you payroll

Answer 15

All expenses apart from living accommodation and interest free (below ORI ) loans

Question 16

When is the individual taxed on the benefit

Answer 16

Earliest of: when the payment is physically made or the date the employee becomes legally entitled to the payment

Question 17

Discuss the implications of the following

1)Arranged by ER paid by ER
2)Arranged bt EE paid by ER
3)Arranged by EE reimbursed by ER

Answer 17

1) P11D class 1A IT - normal reporting
2) Reported on P11D Class 1P IT Class 1 S goes through payroll
3) Treated as income Class 1 P IT Class 1 S goes through payroll

Question 18

Payrolling benefit

Answer 18

Must inform HMRC before the start of the tax year 6th April
Also inform all employees
Add the value of the benefit to monthly payslip IT deducted at source.
No NI Class S paid at source
Must account for Class 1A national insurance by 6th July
Need inform all staff by 31st May of what expenses have been payrolled, there value and any other benefits no payrolled
Do no need to complete P11D

Question 19

How to calculate the Gross wage when you know the cost to the employer

Answer 19

Cost to employer
Gross up for CT relief /0.75
Find the amount after NI has been deducted /1.1505
Calculate NI = previous step * 0.1505

Question 20

Childcare vouchers

Answer 20

Exempt £55 per week for basic rate taxpayers
£28 for higher rate taxpayer
£25 for additional rate taxpayers

Question 21

Long service award

Answer 21

Must have worked for the company for more than 20 year. Vlaue £50 for each year of service

Question 22

If an emoployee’r partner received the benefit

Answer 22

The benefit is being received by reason of their employment therefore they will be liable for the income tax (obviously not the partner how would we tax)

Question 23

Contributions towards running costs

Answer 23

Therese are not contribition against the private use of the car and therefore are not deductable when arriving at the benefit in kind value