Employment income

Question 1

Employment income calculation

Answer 1

Money earnings
Benefits in kind
Less: allowable deductions

Question 2

Individuals taxed on their money earnings at the earlier of…

Answer 2

Date of receipt
Date when determined / entitled to payment
Date accrued in company account

Question 3

Directors taxed on their money earnings at the earliest of…

Answer 3

Payment date
Date when entitled to payment
Date earnings were accrued in the company’s accounts
End of a period of account if earnings for period determined before the period ends
Date earnings determined if amount is not determined until after the end of the accounting period

Question 4

Employee benefits in kind

Answer 4

Taxed based on the period of time during the tax year that the benefit was available to the employee

Question 5

Allowable expenses against employment income
- can be subtracted from total income before determining how much tax is owed

Answer 5

Expenses incurred wholly, exclusively and necessarily for purposes on employment
eg. contributions into occupational pension schemes / professional subscriptions / travel costs
Deficits on mileage allowance
Charitable payments under payroll deduction scheme

Question 6

Travel costs may be deduced by an employee if…

Answer 6

Expenses necessarily incurred in the performance of duties
Expenses are not expenses of ordinary commuting

Question 7

Exceptions when travelling between home and work is an allowable expense

Answer 7

No normal place of work
Home is one of their work locations
Working from temporary workplace for under 24 months

Question 8

Statutory approved mileage allowance

Answer 8

Employer can pay a tax-free allowance if an employee makes business journeys in their own vehicle
Employer can pay up to 5p per mile for each fellow employee on the same trip
Allowable deduction available on the shortfall if payments received are less than the statutory amount
Employee taxable on the surplus if payments received exceed the statutory amount

Question 9

Statutory amounts of tax-free allowance per mile

Answer 9

Cars - 45p up to 10,000 miles, 25p afterwards
Motorcycles - 24p
Bicycles - 20p

Question 10

Taxable benefits

Answer 10

Establishes in legislation through the benefits code
Vouchers
Accommodation
Assets for private use
Employment-related loans
Any non-monetary benefit provided by reason of the employment

Question 11

Benefits code rules

Answer 11

Time apportion the benefit value if it was not available for the full tax year
Deduct contributions made by the employee from the taxable benefit (except for private fuel)
Taxable benefits can be reduced to nil if the employee pays the full monetary value of the benefit to the employer before 6th July following the tax year

Question 12

For vouchers, employees are taxable on the provision of…

Answer 12

Cash vouchers
Credit tokens
Vouchers exchangeable for goods and services
Taxable amount = cost to the employer of providing the benefit - any amount paid by the employee

Question 13

Job-related accommodation

Answer 13

Accommodation is not a taxable benefit if it is job-related
- necessary
- improves performance / customary to provide
- provided for personal security

Question 14

Taxable benefit for non job-related owned accommodation

Answer 14

Annual value + (Cost - £75k) x 2.25% - employee contributions

Question 15

Taxable benefit for non job-related rented accommodation

Answer 15

Higher of annual value and rent paid
- employee contributions

Question 16

Living expenses

Answer 16

All are taxable benefits
Decorating taxable in the year the work is done
If the accommodation is job-related, the benefit is restricted to a maximum of 10% of the employee’s earnings and other non-accommodation benefits

Question 17

Taxable benefit for cars for private use

Answer 17

(List price - capital contribution) x CO2%
- running cost contribution
Capital contributions deduction capped at £5k

Question 18

Taxable benefit for private fuel

Answer 18

£27,800 x CO2%
Partial employee contribution towards the cost of fuel does not reduce the taxable amount

Question 19

Taxable benefit for company vans

Answer 19

£3,960
£0 if zero-emission
Additional private fuel benefit = £757
Ignore incidental private use of the van

Question 20

Taxable benefit for assets available for private use

Answer 20

20% of MV when first provided
Additional taxable benefit if employee subsequently acquires the asset
= (Higher of current MV / MV at provision
- cumulative amount taxed)
- employee price paid

Question 21

Taxable benefit for loans

Answer 21

Cheap loans = loan value x 2.25% - actual interest paid
Loan written off = value written off taxable as employment income

Question 22

Calculation of loan value methods

Answer 22

Choose the lower value produced by either the Strict method or the Average method
Strict method = calculate interest @ 2.25% month by month on the outstanding balance
Average method = (opening loan balance + closing loan balance) / 2

Question 23

Loan write-off

Answer 23

If a part of a loan is written-off, the value written off is taxable as employment income, regardless of the size of the loan or the write-off

Question 24

Taxable benefit for salary sacrifice

Answer 24

The higher of the taxable value and the value of the cash sacrificed

Question 25

Exempt benefits

Answer 25

Contributions by an employer to a registered pension scheme
Trivial benefit
Social events paid for by the employer up to £150 per head per tax year
Entertainment provided by a third party
Provision of a parking space
Work-related training courses
Sports and recreation facilities

Question 26

CO2% bonus for diesel cars not certified to the Real Driving Emissions 2 standard

Answer 26

4%

Question 27

Maximum CO2%

Answer 27

37%

Question 28

Taxable benefit for benefits provided in-house

Answer 28

Marginal cost to employer of providing the benefit
- amount paid by employee for the benefit