Employment Income

Question 1

resident & domiciled?

Answer 1

lives in the UK, UK is their personal home

therefore, all income is taxable in the UK

Question 2

domicile?

Answer 2

permanent home

Question 3

what happens to UK income when resident & domicile?

Answer 3

taxable in UK

Question 4

what happens to overseas income when resident & domicile?

Answer 4

taxable in UK

may be able to claim double tax relief (DTR)

Question 5

DTR?

Answer 5

double tax relief

tax relief for individuals on their overseas income, as they may get taxed twice by two different countries

Question 6

what happens to UK income when resident & not domicile?

Answer 6

taxable in UK

Question 7

what happens to overseas income when resident & not domicile?

Answer 7

not remittance basis user: taxable in UK (DTR)

remittance basis user: income remitted to UK = taxable in UK (DTR)

income not remitted to UK = not taxable in UK

Question 8

what happens to UK income when not resident?

Answer 8

taxable in uk on employment, trading and property income

Question 9

what happens to overseas income when not resident?

Answer 9

not taxable in UK

Question 10

remittance?

Answer 10

a sum of money sent in payment or as a gift

Question 11

residency test?

Answer 11

test to ascertain where an individual resides to decide where they are due to pay tax

Question 12

types of income?

Answer 12

• employment
• trading
• property
• interest
• dividends
• pension

Question 13

what type of income is employment income?

Answer 13

non-savings

• subject to class 1 NI (primary)

Question 14

what type of income is trading income?

Answer 14

non-savings

• trading profits subject to class 4 NIC
• cash basis is default method from 24/25
• trading allowance 1k

Question 15

what type of income is property income?

Answer 15

non-savings

• cash basis is default method if income <150k
• deduction for replacement items (capex), not enhancement (exp)
• rent-a-room relief 7.5k

Question 16

what type of income is pension income?

Answer 16

non-savings

• income received by pensioners

Question 17

default method for calculating income tax from 24/24?

Answer 17

cash basis

Question 18

can individuals elect to use the accruals basis opposed to the default cash basis?

Answer 18

yes

Question 19

accruals basis for income tax?

Answer 19

recognising expenses and income that is accrued/earned in the tax year

Question 20

cash basis for income tax?

Answer 20

recognising expenses and income that has been paid/received in the tax year

Question 21

class 1 primary refers to…

Answer 21

employees

Question 22

class 1 secondary refers to…

Answer 22

employers

Question 23

what taxes do employees pay?

Answer 23

class 1 (cash)

income tax (cash and benefits)

Question 24

types of employment cash income?

Answer 24

• salary, bonus, lump sum
• entertaining allowance
• mileage payments
• reimbursed expenses

Question 25

salary, bonus, lump sums?

Answer 25

taxed on cash received subject to IT & class 1 primary (employee) subject to class 1 secondary (employer)

Question 26

entertaining allowance?

Answer 26

employees may be given an entertaining allowance by their employer (e.g., £250) the amount that the employee does not spend on entertaining is taxable (e.g., £120 is spent on entertaining, £130 is not - £130 is taxable) subject to income tax

Question 27

vouchers?

Answer 27

taxable on cost to employer subject to IT & class 1 primary (employee) subject to class 1 secondary (employer)

Question 28

mileage payments?

Answer 28

excessive payments from employer are subject to IT & class 1 primary

Question 29

reimbursed expenses?

Answer 29

not taxable as no income is received

Question 30

are cash employment income subject to class 1A primary?

Answer 30

no, as this is cash and not classed as a taxable benefit

Question 31

do employees pay class 1 NIC on benefits?

Answer 31

no benefits are subject to class 1A (paid by employers)

Question 32

two types of pension schemes?

Answer 32

- personal pension scheme - occupational/workplace pension scheme

Question 33

how do pension schemes work?

Answer 33

employers/employees contribute to pension schemes these contributions are then invested in financial assets (stocks, bonds etc) the return on these assets are tax free when the individual retires, they can take out a lump sum amount tax free and receive the rest as an annual pension income

Question 34

does the government encourage pension schemes and saving for retirement?

Answer 34

yes, hence why there are generous tax reliefs

Question 35

are there tax reliefs when contributing to a pension scheme?

Answer 35

yes pension scheme contributions are tax deductible to reduce employment income

Question 36

are pensions a taxable benefit?

Answer 36

no, exempt

Question 37

employer pension contributions are...

Answer 37

exempt

Question 38

employee pension contributions are...

Answer 38

deductible

Question 39

what impact does PAYE paid during the year have on IT liability?

Answer 39

deduct the amount paid via PAYE from the tax liability

Question 40

unincorporated business?

Answer 40

e.g., sole trader / partnership (e.g., EY/PwC) individuals own assets personally - IT on trading income (profits) - NI class 4 (profits) - class 1 secondary (cash & benefits paid to employees) - CGT on gains

Question 41

incorporated business?

Answer 41

e.g., limited company (BP, tesco, apple) company owns assets, investors own shares - investors subject to IT on dividends - CGT on gains - CT on profits - class 1 secondary on cash & benefits to employees

Question 42

what taxes to employees pay?

Answer 42

class 1 primary & IT

Question 43

general rule of thumb for exempt benefits?

Answer 43

tend to be trivial benefits e.g., parking, benefits <£50, training

Question 44

general rule of thumb for taxable benefits?

Answer 44

tend to be the more luxury benefits (e.g., cars, houses, fuel, assets)

Question 45

general rule of thumb for allowable deductions?

Answer 45

tend to be allowances provided by employers and 100% for work purposes (e.g., subscriptions, travel, pension)