Employment Income Flashcards
What are some exempt benefits of employment tax?
- Free / subsidised onside canteen
- Workplace nurseries / childcare
- Use of bicycles
- Sports facilities available to employees but not the general public
- Mobile phone (one per employee only)
- Up to £150 per head for social events - If the event costs more than £150, the full amount is taxable, not the excess. The party must be an annual event in order to qualify.
- Removal expenses up to £8,000 (eg relocation expenses) - excess is taxable
- Job related accommodation
what is a trivial benefit and give an example
A benefit is classed as trivial if it:
- costs no more than £50 and
- is not cash (or a cash voucher) and
- is not provided in recognition of services.
Common examples of trivial benefits are wedding presents and gifts when an employee has a baby.
what is voluntary payrolling?
employers can report the value of benefits via the RTI system and treat the cash equivalent of the benefit like a salary, so that the relevant tax is deducted from the employee under PAYE.
when can a penalty be applied?
Employers must submit PAYE information on or before the day the employee is paid, using a Full Payment Submission (FPS).
The common penalty regime applies if errors are made in the FPS.
Penalties can also be applied if ether the FPS or the payment to HMRC is late.
when is a bonus deemed to be received?
earlier date on which:
- The bonus is paid
- the individual becomes entitled to payment
what is the general rule if there is no specific rule for calculating the benefit
taxed on the marginal cost to the employer less any contributions made by the employee
What are the three conditions for trivial benefits?
- Cost doesn’t exceed £50
- It is not cash or a cash voucher
- It is not provided in recognition of services
(there is an annual £300 cap in respect of benefits to certain directors)
What are the criteria for accommodation being non-taxable?
- Necessary for performance of duties (eg a nanny)
- Customary to be provided (eg prison governor, flight attendant)
- Provided for security (eg soldier barracks, prime minister)
What must be met in order for a director to qualify for necessary or customary job related accommodation?
- The director owns no more than 5% of shares
- The director is a full-time working director (unless the company is a charity/non-profit making)
The taxable benefit for rented accommodation is the higher of what?
- The annual or rateable value
- The rent paid by employer
Note this is then less the contribution of the employee, if applicable and time apportioned
what is the taxable benefit if the accommodation of owned by the employer?
the basic benefit is the rateable value
what is the additional benefit if the cost of the house exceeds £75,000?
(cost - 75000) x official rate of interest at start of the tax year
What are some of the terms determining the ‘cost’ related to owned accommodation?
- Generally the original value of employer purchasing
- If the property has been owned more than 6 years before the employee moves in, the ‘cost’ is taken at market value
- Capital improvements from prior tax years should be included in the ‘cost’ (not the current tax year)
- Employee contributions are deducted from the value of the benefit
What is the official rate of interest from 6th April 2023?
2.25%
What is the taxable benefit for living expenses associated with accommodation?
Cost to employer less any employee contribution
What does a single car benefit charge cover?
- Running costs
- Insurance
- Maintenance
- Road Tax
what is an ancillary benefits?
- related living expenses paid for by the employer eg heating,light
- use cost to employer - employee contributions
- if employer pays for bills then taxable
What is the additional benefit of cars provided for private use?
Manufacturer’s list price x CO2 emissions % (x n/12) ( - employee contribution)
Accessories fitted after registration costing over £100 are added to the list price
what is the maximum CO2 emissions for petrol and diesel cars?
37%
what happens if a diesel car doesn’t meat the RDE2?
add 4% supplement to relevant petrol percentage
What is the car benefit called when the employer provides fuel?
Private fuel benefit
What is the fixed formula for calculating car fuel benefit?
£27,800 x CO2% x (n/12)
- no employee contribution and if employee pays all then no benefit arises
What is the fixed formula for calculating van benefit?
£3,960 x (n/12) - (employee contribution)
What is the fixed formula for calculating van benefit for fuel costs?
£757 x (n/12)
how do you calculate the benefit if the employer owns the asset?
- Annual value - 20% x market value when first provided for private use x n/12 - employee contributions
how do you calculate the benefit if the employer rents the asset
Higher of
- annual value
- rent paid by employer
When do most employers have to report PAYE information and how?
- In real time (Real Time Information - RTI)
- Via payroll software
when must an employer submit information about PAYE?
on or the day before the employee is paid using Full Payment
What is voluntary payrolling?
Employers may opt to process benefits under payroll and report the value via the RTI system as cash equivalents so the relevant tax is deducted under PAYE
For PoT, which benefit cannot be processed through payroll?
Employer provided living accommodation
What does the P60 detail?
- Gross Pay
- Tax deducted
- NICs paid by both employee and employer
When must the employer submit a P60 to each employee?
31st May following the tax year
What is the name of the form used by an employer to provide HMRC with details of benefits provided to employees?
P11D
What is a P11D (b) required for?
A full P11D is not required for benefits that are payrolled, but a smaller P11D (b) form is needed showing the cash equivalents of these benefits
What is a P45 and what does it consist of?
- A form used when an employee leaves
- It has 4 parts
- Contains a summary of taxable pay, tax and NIC deducted, employers NIC contributions
- No information on the P45 must be provided to HMRC
How often do employers generally make income tax / NIC to HMRC and when is it technically due?
Monthly
14 days after the month ends (tax month runs from 6th-5th of the month so payment is due on the 19th of the month)
What are some of the differences when electronic payments are used?
Deadline is extended to 22nd of the month
Employers with at least 250 employees must make their monthly PAYE payments electronically
Under what circumstances can an employer pay quarterly rather than monthly?
When the average monthly payments of PAYE and NICs are no more than £1,500
What do penalties depend on for late PAYE filings?
How many employees the PAYE scheme has
What do penalties depend on for late PAYE/NIC payment?
The number of defaults in the period
What are the 2 forms issued by HMRC in relation to employee tax codes?
- Form P2 - sent to employee detailing tax code and how it is calculated
- Form P9(T) - send to the employer and gives the PAYE code only
How do you calculate the tax code if allowances > deductions?
Net figure ➡️remove last digit➡️add letter L at the end
Eg 17290 1729 1729L
How do you calculate the tax code if deductions > allowances?
Net figure ➡️remove last digit➡️deduct 1➡️add letter K at the start
Eg 28910 2891 2890 K2890
