Employment

Question 1

What is employment?

Answer 1

Employment refers to where an individual is employed by another individual or organisation.

Question 2

What is the first criterion when deciding if employed or self-employed?

Answer 2

Control

Question 3

What is the second criterion when deciding if employed or self-employed?

Answer 3

Remuneration & financial risk

Question 4

What is the third criterion when deciding if employed or self-employed?

Answer 4

Equipment

Question 5

What is the fourth criterion when deciding if employed or self-employed?

Answer 5

Holidays & sickness

Question 6

What is the fifth criterion when deciding if employed or self-employed?

Answer 6

Exclusivity

Question 7

What is the sixth criterion when deciding if employed or self-employed?

Answer 7

Work performance and correction

Question 8

What was the case of Davies v. Braithwaite (1931)?

Answer 8

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.

Question 9

What was the ruling in Fall v. Hitchin (1973)?

Answer 9

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.

Question 10

What is the case law cases around control, in determining if someone is employed or self employed?

Answer 10

Davies vs Braithwaite (1931)

Fall v Hitchin (1973)

Question 11

What would HMRC look at in terms of control on determining employed vs self employed

Answer 11

Who controls the work
Where
When
What expectations are

Question 12

Do employees typically take their own equipment?

Answer 12

No, usually employees do not take their own equipment.

Self-employed individuals usually do take their own equipment.

Question 13

What happens if an employed person does wrong work?

Answer 13

They correct the wrong work during normal hours and are paid for both the original and the correction.

Question 14

What options do self-employed individuals have if they produce defective work?

Answer 14

They can delegate the work or may not be paid by the customer if the work is defective.

Question 15

What is the case name of the 1908 legal decision involving a driver and a mixed concrete company?

Answer 15

Ready Mixed Concrete (South east) Ltd v Minister of Pensions (1908)

Question 16

What was the main issue in the Ready Mixed Concrete case?

Answer 16

The issue was whether the driver was considered an employed person for the purposes of National Insurance.

Question 17

What were the facts of the Ready Mixed Concrete case?

Answer 17

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.

Question 18

What did the court hold regarding employment under a contract of service?

Answer 18

1. Employment under a contract of service exists when a person agrees to perform a service for a company in exchange for remuneration.
2. 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
3. The contractual provisions are consistent with ordinary contracts of service

Question 19

What was the outcome of the Ready Mixed Concrete (South East) Ltd v Minister of Pensions (1968)?

Answer 19

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.

Question 20

What freedoms did the driver have in the Ready Mixed Concrete case?

Answer 20

The driver was free to decide the vehicle, his own labor, fuel, and other requirements in the performance of the task.

Question 21

What are the components of the economic test?

Answer 21

Responsibility for payment of
→ Equipment
→ Hiring staff

Question 22

What are the components of remuneration for employees?

Answer 22

Regular salary, sick pay, holiday pay.

Paid whether or not the employer is making a profit.

Question 23

What is the financial risk for self-employed individuals?

Answer 23

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.

Question 24

What type of pay do employees typically receive?

Answer 24

Employees are likely to receive holiday and sick pay from their employers.

Question 25

What is the general employment situation of an employee?

Answer 25

An employee is employed by just one employer and is an integral part of that employer’s business.

Question 26

How are self-employed individuals compensated?

Answer 26

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.

Question 27

What is the client relationship of self-employed individuals?

Answer 27

Self-employed individuals normally have a number of clients and are not integral to any of their client’s business.

Question 28

What is included in employment income (NSI)?

Answer 28

Emoluments of any employment, office or pension.

Question 29

What types of statutory payments are considered employment income (NSI)?

Answer 29

Statutory sick and maternity pay.

Question 30

What is Job Seekers allowance?

Answer 30

A type of employment income (NSI).

Question 31

What is long term incapacity benefit?

Answer 31

A type of employment income (NSI).

Question 32

What is invalid care allowance?

Answer 32

A type of employment income (NSI).

Question 33

What is industrial death benefit?

Answer 33

A type of employment income (NSI).

Question 34

What is a widows pension?

Answer 34

A type of employment income (NSI).

Question 35

When are golden hellos taxed

Answer 35

As though received in first year of employment

Question 36

What is the case law regarding golden hellos?

Answer 36

Shilton v Wilmshurst (1991)

Question 37

What was the ruling in Shilton v Wilmshurst?

Answer 37

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.

Question 38

What are fully exempt termination payments?

Answer 38

Death, injury, and disability.

Question 39

What are fully taxable termination payments?

Answer 39

If a reward for services, taxed under normal rules.

Question 40

What are partially exempt termination payments?

Answer 40

Compensation for loss of employment (redundancy pay ‘ex gratia’). The first £30,000 is exempt from income tax.

This is reduced by any statutory redundancy pay that an employee also receives.

Question 41

What was the Moore v Griffith (1972) about

Answer 41

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.

Question 42

What was the Moore v Griffith (1972) about

Answer 42

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.

Question 43

What are the case laws that relate to gifts and prizes

Answer 43

Moore v Griffith (1972)
Ball v Johnson (1973)

Question 44

What was the case Ball v Johnson about?

Answer 44

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.

Question 45

What was Ball’s argument in the case?

Answer 45

Ball argued that the sum of money should be subject to income tax as part of his employment income.

Question 46

What was Johnson’s argument in the case?

Answer 46

Johnson argued that the sum should not be assessable for tax purposes as it was not part of his regular earnings.

Question 47

What was the court’s decision in Ball v Johnson?

Answer 47

The court decided in favor of Ball, ruling that the award was connected to income.

Question 48

What does PAYE stand for?

Answer 48

PAYE stands for ‘pay as you earn’.

Question 49

How is tax collected under the PAYE system?

Answer 49

Tax is collected under the PAYE system by employers deducting tax from salaries or wages every month or week.

Question 50

What do employers use to deduct tax?

Answer 50

Employers use tax tables and code numbers issued by HMRC.

Question 51

What is the purpose of the code number issued to employees?

Answer 51

Employees are issued with a code number, such as 1257L, which shows personal allowances (PAs) and other relevant information.

Question 52

What factors are considered in tax codes?

Answer 52

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.

Question 53

What are the two types of expenses?

Answer 53

1. Round sum expenses
2. Expenses that are specifically reimbursed

Question 54

What is an example of round sum expenses?

Answer 54

£100 per month for business travel

Question 55

How are both types of expenses assessed?

Answer 55

Both types of expenses are assessed as part of income.

Question 56

Can employees claim deductions for expenses?

Answer 56

Yes, employees can claim deductions for expenses that have been wholly, exclusively, and necessarily incurred in the performance of their duties.

Question 57

What are 4 Approved Employee Incentive Schemes

Answer 57

• 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.

Question 58

→ Share Incentive Plans (SIP)

Answer 58

→ 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

Question 59

→ SAYE

Answer 59

→ 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

Question 60

→ Company Share Option Plan

Answer 60

→ 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.

Question 61

→ Enterprise Management Scheme (EMI’s)

Answer 61

→ 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.

Question 62

What are Benefits in Kind (BIK)?

Answer 62

BIK consist of employment income in the form of goods and services rather than money.

Question 63

How is income tax applied to Benefits in Kind?

Answer 63

Income tax is charged on all earnings from employment, including BIK.

Question 64

How are employees taxed on Benefits in Kind?

Answer 64

Employees are taxed on the cost to the employer providing the benefit.

Question 65

Benefits in kind that are exempt

Answer 65

Annual office party (150 per head if over full Amt is taxable)

Question 66

Benefits that are assessable on employees

Answer 66

Question 67

What is the assessable benefit when an employer provides living accommodation?

Answer 67

The assessable benefit is calculated as the annual rateable value of the property or the rent paid by the employer if it’s greater.

Question 68

How is the assessable benefit reduced?

Answer 68

It is reduced by the employee contribution.

Question 69

What is considered ‘expensive’ accommodation?

Answer 69

Accommodation costs exceeding $75,000 create an increased benefit.

Question 70

How is the increased benefit calculated for costs greater than $75,000?

Answer 70

The cost greater than $75,000 is multiplied by an official interest rate.

Question 71

What is the official interest rate for 24/25?

Answer 71

The official interest rate for 24/25 is 2.25%.

Question 72

How do you calculate the assessable benefit?

Answer 72

Assessable benefit = annual rateable value + 2.25% (cost - 75,000).

Question 73

What are ancillary services?

Answer 73

Benefits calculated on the cost of such services, with a spend of no more than 10% of net earnings being tax-free.

Employee contributions are deductible.

Question 74

How are vouchers for goods and services taxed?

Answer 74

Vouchers are taxed on all employees, with the benefit equal to the cost to the employer.

Vouchers provided by someone other than the employer are an exception.

Question 75

What is an assessable benefit when an employee uses a car owned by the employer?

Answer 75

If an employee is allowed any private use of a car owned by his/her employer, there is an assessable benefit.

Question 76

How is the assessable benefit calculated?

Answer 76

The benefit is calculated by reference to the list price of the car when new.

Question 77

What factors are considered in calculating the car benefit?

Answer 77

The car’s CO2 emissions are considered in the calculation.

Question 78

Can market value be used for certain cars?

Answer 78

Market value (MV) may be used for certain classic cars, but this is not covered.

Question 79

What is the formula for calculating the benefit?

Answer 79

Benefit = car list price x % based on the CO2 emissions of the car.

Question 80

Percentages for car benefits co2 emissions

Answer 80

Starter point 75g/km = 20%
Max percentage is 37%
Additional 4% for diesel cars

Question 81

→ Taxable benefit is reduced if

Answer 81

• 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

Question 82

What is a fuel benefit?

Answer 82

A fuel benefit is where fuel is provided by an employer for an employee’s private use and is assessable.

Question 83

How is the fuel benefit assessed?

Answer 83

The fuel benefit is assessed according to CO2 emissions.

Question 84

What percentage is applied to the fuel benefit?

Answer 84

A percentage is calculated and applied to a set figure, which is $27,800 for the year 24/25.

Question 85

Is the fuel benefit reduced if the car is not available for the full year?

Answer 85

Yes, the fuel benefit is reduced if the car is not available for the full year.

Question 86

Is the fuel benefit reduced if the employee contributes to fuel?

Answer 86

No, the fuel benefit is NOT reduced if the employee makes a contribution to fuel.

Question 87

What is the assessed benefit for vans weighing 3.5 tonnes or less in 2024-25?

Answer 87

The assessed benefit is £3,960.

Question 88

What is the fuel benefit for vans weighing 3.5 tonnes or less in 2024-25?

Answer 88

The fuel benefit is £757.

Question 89

Is there a benefit for vans that weigh more than 3.5 tonnes?

Answer 89

No benefit is provided for vans that weigh more than 3.5 tonnes.

Question 90

What is the assessable benefit when an employer lends an asset to an employee for private use?

Answer 90

20% of the market value (MV) of the asset at the date of loan.

Question 91

What happens if the asset is subsequently given or sold to the employee?

Answer 91

An additional amount is assessed based on the greater of two values.

Question 92

What are the two values used to assess the additional amount when an asset is given or sold to an employee?

Answer 92

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.

Question 93

What are beneficial loans?

Answer 93

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%).

Question 94

Who sets the official rate of interest?

Answer 94

The treasury.

Question 95

How is the benefit of a beneficial loan calculated?

Answer 95

The benefit is the difference between the actual interest paid and the amount that would not have been payable at the official rate.

Question 96

Is there a benefit if the loan amount does not exceed $10,000?

Answer 96

No benefit arises if the beneficial loan does not exceed $10,000.

Question 97

What are beneficial loans?

Answer 97

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%).

Question 98

Who sets the official rate of interest?

Answer 98

The treasury.

Question 99

How is the benefit of a beneficial loan calculated?

Answer 99

The benefit is the difference between the actual interest paid and the amount that would not have been payable at the official rate.

Question 100

Is there a benefit if the loan amount does not exceed $10,000?

Answer 100

No benefit arises if the beneficial loan does not exceed $10,000.

Question 101

How is the benefit calculated when the amount of the loan varies throughout the year?

Answer 101

The benefit is calculated by either the standard method or the alternative method.

Question 102

What is the standard method for calculating the benefit?

Answer 102

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.

Question 103

What is the alternative method for calculating the benefit?

Answer 103

The alternative method calculates the amount of official interest on a daily basis.

Question 104

When does no assessible benefit arise from a loan?

Answer 104

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.

Question 105

What is another condition under which no assessible benefit arises?

Answer 105

No assessible benefit arises if the total amount of loans to the employee is less than £10,000.

Question 106

What qualifies a loan to have no assessible benefit?

Answer 106

A loan qualifies for no assessible benefit if it is a qualifying loan, i.e., eligible for tax relief.

Question 107

How is the benefit calculated when the amount of the loan varies throughout the year?

Answer 107

The benefit is calculated by either the standard method or the alternative method.

Question 108

What is the standard method for calculating the benefit?

Answer 108

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.

Question 109

What is the alternative method for calculating the benefit?

Answer 109

The alternative method calculates the amount of official interest on a daily basis.

Question 110

When does no assessible benefit arise from a loan?

Answer 110

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.

Question 111

What is another condition under which no assessible benefit arises?

Answer 111

No assessible benefit arises if the total amount of loans to the employee is less than £10,000.

Question 112

What qualifies a loan to have no assessible benefit?

Answer 112

A loan qualifies for no assessible benefit if it is a qualifying loan, i.e., eligible for tax relief.

Question 113

What happens if a loan is written off by an employer?

Answer 113

The amount written off is assessable benefit on the employee.

Question 114

When does the written off loan not apply as assessable benefit?

Answer 114

If the loan has been written off on the death of the employee.

Question 115

What is another exception for a written off loan not being assessable benefit?

Answer 115

If the loan was to the relative of an employee and it can be shown that the employee derives no benefit from it.

Question 116

Overview of Hall v Lorimer

Answer 116

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.

Question 117

Main points in the Hall V Lorimer case

Answer 117

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.

Question 118

What tax advantages do self-employed people have compared to employees?

Answer 118

Self-employed people enjoy tax advantages such as a wider range of allowable expenses and delayed income tax payments.

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.

Question 119

What is one advantage of self-employed individuals regarding expenses?

Answer 119

Self-employed individuals can deduct a much wider range of expenses against their income compared to employees.

This allows self-employed individuals to reduce their taxable income more effectively.

Question 120

How do self-employed individuals pay their income tax compared to employees?

Answer 120

Self-employed individuals generally pay their income tax much later than employees.

Employees pay income tax under a Pay as you earn system.