Employment income Flashcards
What is the distinction between employment and self-employment?
- an employee is taxable under the employment income provisions
- a self-employed person is assessed on the profits derived from his, her or their trade, profession or vacation, under the trading income provisions
What is the difference laid down by statute and case law between employed or self-employed?
- nature of contract of service - employment
- nature of contract for services - self employment
Employment
- mutuality of obligations: an obligation by the employer to offer work and an obligation by the employee to undertake the work offered
- control: the employer controls the manner and method of the work
- benefits: the individual is entitled to benefits normally provided to employees such as sick pay and holiday pay
- basis of payment: the individual is committed to work a specified number of hours at certain fixed times
- length of engagement: for a long period of time
- equipment: not provided by individual
- personal service: the individual is obliged to work personally and exclusively for the employer, and cannot hire his her or their helpers
- part and parcel of organisation: integral part of the business
- financial risk: if self-employed not paid as agreed, regular
- sound management: individual cannot profit from sound management
Fundamental points to establish if employed or self-employed
- it is necessary to look at the overall picture and to decide by examining a number of criteria
- no one factor is conclusive
Pro forma - employment income computation main part:
- salary
- bonus/commission
- benefits
- reimbursed expenses
- cash vouchers
Pro forma - employment income computation less allowable deductions
- expenses incurred wholly, exclusively and necessarily
- contributions to employer’s occupational pension scheme
- subscriptions to professional bodies
- charitable donations: payroll deduction scheme
- travel and subsistence expenses
- use of own car - mileage allowance
What is the date earnings are received?
- the date of receipt is the earlier than
actual payment of, or on account of, earnings
becoming entitled to such a payment
What is the date earnings are received for directores?
earliest of four dates, two general rules:
- where sums on account of earnings are credited in the company’s accounts
- where earnings are determined:
- before the end of a period of account = the end of that period
- after the end of a period of account = date the earnings are determined
What is the general rule for expenditure?
- is only deductible if it is incurred wholly, exclusively and necessarily in the performance of duties
What is expenditure permitted by statute?
- employee contributions to occupational pension schemes
- fees and subscriptions to professional bodies and learned societies, provided that the recipient is approved for the purpose by HM Revenue and Customs, activities relevant to employment
- payments to charity made under a payroll deduction scheme, operated by employer
- expenditure on travel and other business related expenses is deductible to the extent that is complies with very stringent rules
- capital allowances are available for plant and machinery necessarily provided by an employee for use in employment duties
Payroll deduction scheme
- under the payroll deduction scheme an employee authorises his, her or their employer to make deductions form the employee’s salary and pay the amounts over to specified charities
Travel expenditure when they can be deducted?
- are incurred necessarily in the performance of the duties of the employment
- are attributable to the necessary attendance at any place by the employee in the performance of employment duties
What rules are apply for travel to a temporary workplace?
- travel directly from home to temporary place of work
- temporary workplace is defined as one where and employee goes to perform a task of limited duration or for a temporary purpose, no longer than 24 months
-where and employee passes their normal permanent workplace on the way to a temporary workplace, relief will still be available provided the employee does not stop at the normal workplace, of any stop is incidental
What is the form using for reporting reimbursed expenses with are not exempt?
- P11D
What are HMRC approved mileage rate which are tax allowable:
- first 10,000 miles p.a. 45p
- over 10,000 miles p.a. 25p
Rules with Approved milleage allowance payments (AMAPs)
- if the mileage allowance paid by the employer = AMAPs: no benefit/expense arises
- where payments made to the employee >AMAP: Excess = assessed on the employee as a benefit
- where the payment to the employee < AMAP: Difference = allowable deduction from employee’s employment income
What are the taxable benefits rules?
- general rule: marginal cost to employer of providing benefit
- special rules: vouchers, living accommodation, cars, private fuel, vans, beneficial loans, use and gift of assets, living accommodation expenses
What are the rules applicable to all benefits?
-reduced by any contributions made by the employee towards the cost of the benefit
- time apportioned if it was only available for part of the tax year
Exempt benefit
- trivial benefits (gift<£50 birthday)
- employer’s contribution to a pension scheme
- subsidised on-site restaurant or canteen facilities - provision of car parking space at or near work, including reimbursement
- provision of one mobile telephone for private use
- provision of bicycles
- christmas party (event, £150 per head)
-workplace nurseries for child care - relocation and removal expenses up to £8,000
- expenses overnight, up to £5 per night, overseas £10
- home worker’s additional household expenses of up to £6 per week
- loans with a beneficial interest rate, provided the loan is <=£10,000 throughout the tax year
- provision of job-related accommodation
- up to £500 per employee per tax year for recommended medical treatment to enable an employee to return to work
Further exempt benefits
-entertainment provided for an employee
- gifts received £250 per tax year max
- long service, £50 per year
- provision of travel due disruption by industrial action
- employer funded training
- medical insurance
- security assets and services
- recreational or sporting facilities
-welfare counselling
- pension advice for employees, £500
- employee liability insurance
- provision by employers of eye care test and/or corrective glasses
- awards of up to £25 under a staff suggestion scheme
What are the criteria for relocation and removal expense (exempt up to £8,000)
- expenses in connection with new employment, new role with existing employer, change location
- it is necessary to acquire a new residence as commuting would not be viable
- costs met or reimbursed must be qualifying expenses; selling house, travel
- expenditure must be be incurred by the end of the tax year following the one in which the employment change occurred
Recommended medical treatment,exemption applies:
- by health care professional
- for an employee assessed as unfit for work due to injury or ill health
- after a period of sickness absence of at least 28 consecutive days
- recommended treatment
- max £500 per employee
