Employment Flashcards
1
Q
What is employment?
A
Employment refers to where an individual is employed by another individual or organisation.
2
Q
What is the first criterion when deciding if employed or self-employed?
A
Control
3
Q
What is the second criterion when deciding if employed or self-employed?
A
Remuneration & financial risk
4
Q
What is the third criterion when deciding if employed or self-employed?
A
Equipment
5
Q
What is the fourth criterion when deciding if employed or self-employed?
A
Holidays & sickness
6
Q
What is the fifth criterion when deciding if employed or self-employed?
A
Exclusivity
7
Q
What is the sixth criterion when deciding if employed or self-employed?
A
Work performance and correction
8
Q
What was the case of Davies v. Braithwaite (1931)?
A
Miss Braithwaite claimed that various contracts between her and theatrical producers were contracts of service. The revenue contended that she was exercising her profession as an actress and was self-employed.
9
Q
What was the ruling in Fall v. Hitchin (1973)?
A
Mr. Hitchin was a professional dancer, required to work full time, set hours, and a set salary. He did not work anywhere else. The contract was therefore held to be a contract of service, so employed.
10
Q
What is the case law cases around control, in determining if someone is employed or self employed?
A
Davies vs Braithwaite (1931)
Fall v Hitchin (1973)
11
Q
What would HMRC look at in terms of control on determining employed vs self employed
A
Who controls the work
Where
When
What expectations are
12
Q
Do employees typically take their own equipment?
A
No, usually employees do not take their own equipment.
Self-employed individuals usually do take their own equipment.
13
Q
What happens if an employed person does wrong work?
A
They correct the wrong work during normal hours and are paid for both the original and the correction.
14
Q
What options do self-employed individuals have if they produce defective work?
A
They can delegate the work or may not be paid by the customer if the work is defective.
15
Q
What is the case name of the 1908 legal decision involving a driver and a mixed concrete company?
A
Ready Mixed Concrete (South east) Ltd v Minister of Pensions (1908)
16
Q
What was the main issue in the Ready Mixed Concrete case?
A
The issue was whether the driver was considered an employed person for the purposes of National Insurance.
17
Q
What were the facts of the Ready Mixed Concrete case?
A
A driver contracted with a mixed concrete company as an independent contractor, set out wages and expenses, purchased his own vehicle, and had to comply with certain company rules.
18
Q
What did the court hold regarding employment under a contract of service?
A
- Employment under a contract of service exists when a person agrees to perform a service for a company in exchange for remuneration.
- A person agrees expressly or impliedly, to subject himself to the control of the company a sufficient degree to render the company as his “master” including control over the tasks performance, means , time
- The contractual provisions are consistent with ordinary contracts of service
19
Q
What was the outcome of the Ready Mixed Concrete (South East) Ltd v Minister of Pensions (1968)?
A
The court held that the driver had sufficient freedom in the performance of his contractual obligations and was an independent contractor, not an employee of the company.
20
Q
What freedoms did the driver have in the Ready Mixed Concrete case?
A
The driver was free to decide the vehicle, his own labor, fuel, and other requirements in the performance of the task.
21
Q
What are the components of the economic test?
A
Responsibility for payment of
→ Equipment
→ Hiring staff
22
Q
What are the components of remuneration for employees?
A
Regular salary, sick pay, holiday pay.
Paid whether or not the employer is making a profit.
23
Q
What is the financial risk for self-employed individuals?
A
They can make a profit or loss.
More risk involved.
If you work on a credit basis There is a bigger risk of receiving money, which can be stressful if they need to pay employees.
No guarantee of income.
24
Q
What type of pay do employees typically receive?
A
Employees are likely to receive holiday and sick pay from their employers.
25
What is the general employment situation of an employee?
An employee is employed by just one employer and is an integral part of that employer's business.
26
How are self-employed individuals compensated?
Self-employed individuals are paid by their clients only for the work that they do and do not get paid when on holiday or ill.
27
What is the client relationship of self-employed individuals?
Self-employed individuals normally have a number of clients and are not integral to any of their client’s business.
28
What is included in employment income (NSI)?
Emoluments of any employment, office or pension.
29
What types of statutory payments are considered employment income (NSI)?
Statutory sick and maternity pay.
30
What is Job Seekers allowance?
A type of employment income (NSI).
31
What is long term incapacity benefit?
A type of employment income (NSI).
32
What is invalid care allowance?
A type of employment income (NSI).
33
What is industrial death benefit?
A type of employment income (NSI).
34
What is a widows pension?
A type of employment income (NSI).
35
When are golden hellos taxed
As though received in first year of employment
36
What is the case law regarding golden hellos?
Shilton v Wilmshurst (1991)
37
What was the ruling in Shilton v Wilmshurst?
The ruling stated that a payment made by Nottingham Forest Football Club to Peter Shilton was an emolument of his employment with Southampton Football Club and was therefore taxable.
38
What are fully exempt termination payments?
Death, injury, and disability.
39
What are fully taxable termination payments?
If a reward for services, taxed under normal rules.
40
What are partially exempt termination payments?
Compensation for loss of employment (redundancy pay 'ex gratia'). The first £30,000 is exempt from income tax.
## Footnote
This is reduced by any statutory redundancy pay that an employee also receives.
41
What was the Moore v Griffith (1972) about
players (moore) got given a sum of money for winning world cup, he didn’t know he would get until after he won, was taxed as bonus but moore said shoukd not be taxed as outwith his normal salary, or prize. Moore won.
42
What was the Moore v Griffith (1972) about
players (moore) got given a sum of money for winning world cup, he didn’t know he would get until after he won, was taxed as bonus but moore said shoukd not be taxed as outwith his normal salary, or prize. Moore won.
43
What are the case laws that relate to gifts and prizes
Moore v Griffith (1972)
Ball v Johnson (1973)
44
What was the case Ball v Johnson about?
The case involved Ball, a tax inspector, and Johnson, a bank clerk, regarding the taxability of a sum of money received as part of an award scheme.
45
What was Ball's argument in the case?
Ball argued that the sum of money should be subject to income tax as part of his employment income.
46
What was Johnson's argument in the case?
Johnson argued that the sum should not be assessable for tax purposes as it was not part of his regular earnings.
47
What was the court's decision in Ball v Johnson?
The court decided in favor of Ball, ruling that the award was connected to income.
48
What does PAYE stand for?
PAYE stands for 'pay as you earn'.
49
How is tax collected under the PAYE system?
Tax is collected under the PAYE system by employers deducting tax from salaries or wages every month or week.
50
What do employers use to deduct tax?
Employers use tax tables and code numbers issued by HMRC.
51
What is the purpose of the code number issued to employees?
Employees are issued with a code number, such as 1257L, which shows personal allowances (PAs) and other relevant information.
52
What factors are considered in tax codes?
Tax codes consider personal allowances (PAs), reliefs, adjustments to collect tax on benefits in kind (BIK), and adjustments for under or overpaid tax in previous years.
53
What are the two types of expenses?
1. Round sum expenses
2. Expenses that are specifically reimbursed
54
What is an example of round sum expenses?
£100 per month for business travel
55
How are both types of expenses assessed?
Both types of expenses are assessed as part of income.
56
Can employees claim deductions for expenses?
Yes, employees can claim deductions for expenses that have been wholly, exclusively, and necessarily incurred in the performance of their duties.
57
What are 4 Approved Employee Incentive Schemes
• Share incentive plans (SIP)
• Approved share option schemes
• Enterprise management initiatives (EMI's)
• SAYE (save as you earn)
Unapproved schemes will not have the same tax advantages.
58
→ Share Incentive Plans (SIP)
→ Share Incentive Plans (SIP)
• allows employees to acquire shares in the
company they work for
• free shares in the company worth £3,600 p.a.
• company may offer free shares to work performance
• DVD arising may be reinvested tax-free in further dividend shares
• rules surounding free/ matching, partnership, dividend shares
• If free/matching or partnership shares leave plan within 3 years, tax and NIC based on
market value
• Shares leave the plan if employee ceases employment
• If leave the plan after 5 years - no tax charge
or NIC
59
→ SAYE
→ SAYE
• A savings- related share scheme where you can buy shares with your savings for a
fixed price
• You can save up to $500 a month under
the scheme. At the end of your savings contract (3 or 5 years) you can use the savings to buy shares
Tax advantages are:
- the interest and any bounus at the end of the scheme is tax free
- you do not pay income tax or NIC
on the difference between what you pay
for the shares and what they're worth
60
→ Company Share Option Plan
→ Company Share Option Plan
• Less restrictive than SAYE
• company can select to who to offer to - link
to performance
• Option to buy up to £60,000 worth of shares in the future at a fixed price
• Will not pay incone tax of national insurance
contributions on the direrence between what you pay for the shares and what they are actually worth.
61
→ Enterprise Management Scheme (EMI's)
→ Enterprise Management Scheme (EMI's)
•if you work for a company with assets of £30 million or less , less than 250 employees, it may be able to offer EMIs
• Your company can grant you share options
up to the value of $250, 000 in a 3y period
• you will not have to pay income tax or NICs if you buy the shares for at least the market value they had when you were granted the option
• If you were given a discount on the market
value, you'll have to pay income tax or NIC
on the difference between what you pay and
what the shares are worth.
62
What are Benefits in Kind (BIK)?
BIK consist of employment income in the form of goods and services rather than money.
63
How is income tax applied to Benefits in Kind?
Income tax is charged on all earnings from employment, including BIK.
64
How are employees taxed on Benefits in Kind?
Employees are taxed on the cost to the employer providing the benefit.
65
Benefits in kind that are exempt
Annual office party (150 per head if over full Amt is taxable)
66
Benefits that are assessable on employees
67
What is the assessable benefit when an employer provides living accommodation?
The assessable benefit is calculated as the annual rateable value of the property or the rent paid by the employer if it's greater.
68
How is the assessable benefit reduced?
It is reduced by the employee contribution.
69
What is considered 'expensive' accommodation?
Accommodation costs exceeding $75,000 create an increased benefit.
70
How is the increased benefit calculated for costs greater than $75,000?
The cost greater than $75,000 is multiplied by an official interest rate.
71
What is the official interest rate for 24/25?
The official interest rate for 24/25 is 2.25%.
72
How do you calculate the assessable benefit?
Assessable benefit = annual rateable value + 2.25% (cost - 75,000).
73
What are ancillary services?
Benefits calculated on the cost of such services, with a spend of no more than 10% of net earnings being tax-free.
## Footnote
Employee contributions are deductible.
74
How are vouchers for goods and services taxed?
Vouchers are taxed on all employees, with the benefit equal to the cost to the employer.
## Footnote
Vouchers provided by someone other than the employer are an exception.
75
What is an assessable benefit when an employee uses a car owned by the employer?
If an employee is allowed any private use of a car owned by his/her employer, there is an assessable benefit.
76
How is the assessable benefit calculated?
The benefit is calculated by reference to the list price of the car when new.
77
What factors are considered in calculating the car benefit?
The car's CO2 emissions are considered in the calculation.
78
Can market value be used for certain cars?
Market value (MV) may be used for certain classic cars, but this is not covered.
79
What is the formula for calculating the benefit?
Benefit = car list price x % based on the CO2 emissions of the car.
80
Percentages for car benefits co2 emissions
Starter point 75g/km = 20%
Max percentage is 37%
Additional 4% for diesel cars
81
→ Taxable benefit is reduced if
• the employee makes a contribution towards the capital cost of the car
• the maximum reduction is $5000
• employee makes any benefit payment to
employer for private use of the car
• car is not available for the full year
82
What is a fuel benefit?
A fuel benefit is where fuel is provided by an employer for an employee's private use and is assessable.
83
How is the fuel benefit assessed?
The fuel benefit is assessed according to CO2 emissions.
84
What percentage is applied to the fuel benefit?
A percentage is calculated and applied to a set figure, which is $27,800 for the year 24/25.
85
Is the fuel benefit reduced if the car is not available for the full year?
Yes, the fuel benefit is reduced if the car is not available for the full year.
86
Is the fuel benefit reduced if the employee contributes to fuel?
No, the fuel benefit is NOT reduced if the employee makes a contribution to fuel.
87
What is the assessed benefit for vans weighing 3.5 tonnes or less in 2024-25?
The assessed benefit is £3,960.
88
What is the fuel benefit for vans weighing 3.5 tonnes or less in 2024-25?
The fuel benefit is £757.
89
Is there a benefit for vans that weigh more than 3.5 tonnes?
No benefit is provided for vans that weigh more than 3.5 tonnes.
90
What is the assessable benefit when an employer lends an asset to an employee for private use?
20% of the market value (MV) of the asset at the date of loan.
91
What happens if the asset is subsequently given or sold to the employee?
An additional amount is assessed based on the greater of two values.
92
What are the two values used to assess the additional amount when an asset is given or sold to an employee?
1. MV when the gift or sale takes place less any amount paid by the employee.
2. MV of the asset when first loaned to the employee, less any benefit already assessed on the employee, less any amount paid by the employee.
93
What are beneficial loans?
Loans granted by an employer to an employee (or family member) either interest free or at a rate lower than the official rate (2.25%).
94
Who sets the official rate of interest?
The treasury.
95
How is the benefit of a beneficial loan calculated?
The benefit is the difference between the actual interest paid and the amount that would not have been payable at the official rate.
96
Is there a benefit if the loan amount does not exceed $10,000?
No benefit arises if the beneficial loan does not exceed $10,000.
97
What are beneficial loans?
Loans granted by an employer to an employee (or family member) either interest free or at a rate lower than the official rate (2.25%).
98
Who sets the official rate of interest?
The treasury.
99
How is the benefit of a beneficial loan calculated?
The benefit is the difference between the actual interest paid and the amount that would not have been payable at the official rate.
100
Is there a benefit if the loan amount does not exceed $10,000?
No benefit arises if the beneficial loan does not exceed $10,000.
101
How is the benefit calculated when the amount of the loan varies throughout the year?
The benefit is calculated by either the standard method or the alternative method.
102
What is the standard method for calculating the benefit?
The standard method uses the average of the loan outstanding at the beginning and end of the tax year, with the official interest rate applied and the actual interest paid deducted.
103
What is the alternative method for calculating the benefit?
The alternative method calculates the amount of official interest on a daily basis.
104
When does no assessible benefit arise from a loan?
No assessible benefit arises if the loan is made in the ordinary course of the employer's business on the same terms as loans made to the general public.
105
What is another condition under which no assessible benefit arises?
No assessible benefit arises if the total amount of loans to the employee is less than £10,000.
106
What qualifies a loan to have no assessible benefit?
A loan qualifies for no assessible benefit if it is a qualifying loan, i.e., eligible for tax relief.
107
How is the benefit calculated when the amount of the loan varies throughout the year?
The benefit is calculated by either the standard method or the alternative method.
108
What is the standard method for calculating the benefit?
The standard method uses the average of the loan outstanding at the beginning and end of the tax year, with the official interest rate applied and the actual interest paid deducted.
109
What is the alternative method for calculating the benefit?
The alternative method calculates the amount of official interest on a daily basis.
110
When does no assessible benefit arise from a loan?
No assessible benefit arises if the loan is made in the ordinary course of the employer's business on the same terms as loans made to the general public.
111
What is another condition under which no assessible benefit arises?
No assessible benefit arises if the total amount of loans to the employee is less than £10,000.
112
What qualifies a loan to have no assessible benefit?
A loan qualifies for no assessible benefit if it is a qualifying loan, i.e., eligible for tax relief.
113
What happens if a loan is written off by an employer?
The amount written off is assessable benefit on the employee.
114
When does the written off loan not apply as assessable benefit?
If the loan has been written off on the death of the employee.
115
What is another exception for a written off loan not being assessable benefit?
If the loan was to the relative of an employee and it can be shown that the employee derives no benefit from it.
116
Overview of Hall v Lorimer
Facts: Mr. Hall was a freelance vision mixer who provided services to multiple clients, including television production companies. The Inland Revenue (now HMRC) argued that he was an employee and should be taxed under the PAYE system, while Mr. Hall contended that he was self-employed and liable to pay tax accordingly.
Issue: The central issue was whether Mr. Hall was an employee or a self-employed individual, based on the nature of his working arrangements.
Outcome: The Court of Appeal upheld Mr. Hall’s claim that he was self-employed, dismissing the Inland Revenue's argument. The court ruled that the overall pattern of work indicated that Mr. Hall was not an employee but a self-employed professional.
117
Main points in the Hall V Lorimer case
Mutuality of Obligation: One of the key tests for employment is whether there is a mutual obligation between the worker and the employer. In this case, it was determined that Mr. Hall was not required to work exclusively for any one employer and was free to accept or reject work. This lack of mutual obligation suggested self-employment.
Control Test: The degree of control exercised by the employer is another important factor. Although Mr. Hall worked under some direction while on assignments, he had considerable freedom in how and when he worked. The court found that this degree of control was consistent with self-employment.
Integration Test: This test considers whether the worker is integrated into the business. Mr. Hall was found to be an independent contractor rather than being integrated into the workforce of any one company. He provided services to a range of clients on a freelance basis, which pointed to self-employment.
Financial Risk: One of the characteristics of self-employment is financial risk. The court considered that Mr. Hall bore the risk of securing work, provided his own equipment, and invoiced his clients. This financial independence was another indicator of self-employment.
Provision of Services to Multiple Clients: Hall worked for various production companies, and this diversification of clients supported his claim of being self-employed rather than an employee tied to a single employer.
Overall Approach – Economic Reality Test: The Court of Appeal emphasized the importance of looking at the "whole picture" or the overall economic reality of the relationship rather than relying on isolated factors. The court ruled that Mr. Hall, viewed in the round, was self-employed because he operated as a business providing services to various clients.
118
What tax advantages do self-employed people have compared to employees?
Self-employed people enjoy tax advantages such as a wider range of allowable expenses and delayed income tax payments.
## Footnote
The two main advantages are: 1) A much wider range of expenses is allowed against the income of self-employed people than against income of employees. 2) Self-employed people generally pay their income tax much later than employees, who pay income tax under a Pay as you earn system.
119
What is one advantage of self-employed individuals regarding expenses?
Self-employed individuals can deduct a much wider range of expenses against their income compared to employees.
## Footnote
This allows self-employed individuals to reduce their taxable income more effectively.
120
How do self-employed individuals pay their income tax compared to employees?
Self-employed individuals generally pay their income tax much later than employees.
## Footnote
Employees pay income tax under a Pay as you earn system.
