Employment Income - Additional Aspects Flashcards
Which types of Termination Payment are wholly exempt from income tax and NIC?
- Death, Injury & Disability
- Approved Lump Sum on Retirement
- Statutory Redundancy (but eats into £30,000 exemption limit)
Which types of Termination Payment are fully taxable in terms of income tax and NIC?
- Pay In Lieu of Notice (PILON) where Contractual
- Reward for Past/Future Services
How are fully taxable Termination Payments taxed?
In year of receipt as NSI.
Which types of Termination Payment are exempt upto the £30,000 limit?
- Statutory Redundancy Pay
- Genuine compensation for loss of office
- Continued provision of any benefit
How is the excess amount over the exempt limit for taxable Termination Payments taxed?
Taxed as specific employment income
i.e. income tax but not NIC.
What is a share scheme?
Whereby a company gives/sells shares to its employees often as part of a remuneration package.
What are the three elements of a share scheme set up?
- Grant
- Exercise
- Disposal
What is the ‘Grant’ element of a share scheme and the tax implications?
The date that the employee has the right to buy shares at a future date at a price set now
No income tax or NIC.
What is the ‘Exercise’ element of a share scheme and the tax implications?
When the employee decides to take up the rights and buy the shares.
Income Tax & NIC only for unapproved/Non-Advantaged Schemes.
What is the ‘Disposal’ element of a share scheme and the tax implications?
When the employee owns the shares they can then choose when to sell the shares.
Capital Gains Tax can arise.
What are the two variations of a share scheme?
- Non Advantaged/Unapproved
2. Advantaged/Approved
What is the ‘Grant’ tax implications of a Non-Advantaged Share Scheme?
No Tax.
What is the ‘Grant’ tax implications of an Advantaged Share Scheme?
No Tax.
What is the ‘Exercise’ tax implications of a Non-Advantaged Share Scheme?
Income Tax (& NIC if listed shares/readily convertible assets)
MV at Exercise
Less Exercise Price
= Taxable Value
What is the ‘Exercise’ tax implication of an Advantaged Share Scheme?
No Tax.
What is the ‘Disposal’ tax implication of a Non-Advantaged Share Scheme?
Capital Gains Tax
Proceeds
Less MV at Exercise
= Gain
What is the ‘Disposal’ tax implication of an Advantaged Share Scheme?
Capital Gains Tax
Proceeds
Less Cost
= Gain
Why is it better to use an Advantaged Tax Scheme over a Non-Advantaged Scheme?
In Advantaged - we only pay tax on disposal which is CGT. CGT is taxed at a lower rate than Income Tax.
In Non-Advantaged - we are taxed at exercise at income tax rate and then again on disposal at CGT. Income tax rate is higher than CGT rate.
Therefore as we are only taxed on CGT in an advantaged scheme which is a lower rate we should favour the advantaged scheme over a non-advantaged scheme.
What are the four types of advantaged share scheme?
- Enterprise Management Incentives (EMI)
- Company Share Option Plans (CSOPs)
- Savings Related Scheme (SRS) / (SAYE)
- Share Incentive Plans (SIPS)
Which share schemes are available only to key/senior management employees?
- Enterprise Management Incentives (EMI)
2. Company Share Option Plans (CSOPS)
Which share schemes are available to all employees?
- Savings Related Scheme (SRS) / (SAYE)
2. Share Incentive Plans (SIPS)
What are the four ways to acquire shares under the SIP scheme?
- Award free shares upto a value of £3,600 p.a.
- Partnership shares upto lower of:
- £1,800
- 10% of salary - Can be given matching shares - max 2 for every partnership share.
- Can buy dividend shares from dividend income from the three types of shares above.
What are the IT, NIC & CGT rules on matching shares?
> 5 years: no IT/NIC
3-5 years: IT/NIC on value at award (or withdrawal if lower)
< 3 years: IT/NIC on value at withdrawal
CGT on gain on sale.
What are the tax rules for Dividend shares under SIP?
Dividends are tax free if used from dividend income and held for three years.
If withdrawn before three years, tax in year of withdrawal.
What is the timeframe for contributions for Savings Related Schemes?
Three or Five Year Contributions.
What is the contribution limit for SAYE under SRS?
£5 min to £500 max a month.
