Formulas/ Question methods

Question 1

Provision of living accommodation – Cash Equivalent

Answer 1

Property owned by employer:
-Annual Value, plus

-Additional charge if cost > £75,000 (cost” = original cost plus improvements less EE reimbursements)
(excess x official rate of interest)
-Watch 6 year rule
-(use MV at date employee starts to occupy)
NB: No taxable benefit if job-related accom

Question 2

Company Car – Cash Equivalent

Answer 2

• List price x “relevant percentage” (depends on CO2 emissions)
• Round down CO2 to nearest 5g/km
• CO2 55g/km: relevant percentage of either 16% or 15% depending on pre or post registered
• Increase by 1% for each 5g/km over 55g/km (max 37%)
• Extra 4% (up to max of 37%) for diesel cars, unless certified to the Real Driving Emissions 2 Standard (RDE2 Standard)

Question 3

Private Fuel – Cash Equivalent

Answer 3

• £24,600 x “relevant percentage” (from company car calc)

- No taxable benefit if employee reimburses FULL cost of private fuel

Question 4

Beneficial loans – Cash Equivalent

Answer 4

Average Method- Average loan balance x
(ORI less interest rate)

Strict Method- Actual loan balance x
(ORI less interest rate)

Question 5

Beneficial Loan- Average Method

Answer 5

• Add together the two loan amounts in a year
  Divide by 2

Multiply by the ORI

Question 6

Beneficial Loan- Strict Method

Answer 6

Treat each loan amount separately
-Multiply each loan amount by the number of months at that amount divided by 12

-Multiply that figure by the ORI

Use the lowest figure, however, HMRC can request you use the strict method

Question 7

Income Tax Computation- Step plan 1-4 (Taxable Income)

Answer 7

1) Identify taxable income- NSI, SI, DI
2) Add up each column to reach ‘total income’

3) Deduct allowable deductions (qualifying loan interest/loss relief) to reach ‘net income’
4) Deduct personal allowance (restrict for ‘high earners’) to reach ‘taxable income’.

Question 8

Income Tax Computation- Step plan 5-8 (Income tax due)

Answer 8

5. Tax each source of income at appropriate rates
6. Add up tax to reach ‘Income tax liability’
7. Add back child benefit charge / deduct marriage allowance (if relevant).
8. Deduct tax witheld at source to reach income tax payable /repayable.

Question 9

CGT- Gain/Loss calculation

Answer 9

Gross sale proceeds

• Incidental costs of sale

= Net sale proceeds

Acquisition costs

• Incidental costs of acquisition
• Enhancement expenditure

= Net sale proceeds - costs

Question 10

Valuation of quoted shares

Answer 10

One half of the way up from the lowest to the highest closing prices of the day

Value for CGT:
366p plus
1/2 x (372p-366p)
i.e. 369p

Question 11

Chattels: Non-wasting Chatel 5/3 rule

Answer 11

5/3 x (Gross proceeds - £6,000)
Proceeds > £6,000

Cost < £6,000
Chargeable Gain= lower of
Normal gain calculation- Proceeds - cost

Question 12

Chattels: Deemed Proceeds Rule

Answer 12

Proceeds < £6k

Cost > £6k

Question 13

Chattels: Exempt

Answer 13

Cost < £6k

Proceeds < £6k

Question 14

Chattels: Normal Gain Calculation

Answer 14

Proceeds > £6k

Cost > £6k

Question 15

Rate of CGT depends on two factors

Answer 15

1) Available Basic Rate Band- BRB 20/21- £37,500, available BRB: £37,500 less taxable income income for 2020/21.
2) Is the asset sold residential property? Basic rate- 18%, Higher rate- 28%

Question 16

Flat formula/ Annual value

Answer 16

Annual value= £3,000

Additional charge (based on cost not MV - see above)

£250,000 - £75,000 x 3% (ORI) =£5,250

Cash equivalent= 8,250

Question 17

Cash equivalent of benefit provided layout

Answer 17

Cash equivalent of car is list price x relevant percentage

List price =

Relevant percentage calculation

Round C02 emissions to nearest 5

Deduct 55

Divide by 5

Add to base percentage

Thus benefit =

Deduct employee contributions
Cash equivalent

Question 18

Non wasting chattel

Answer 18

• Expected life > 50 years

- Exempt under £6000, chargeable over

Question 19

If bought > £6000 but sold for < £6000

Answer 19

Allowable loss, but proceeds deemed = £6000

Question 20

If cost < £6000 but sell for more

Answer 20

Tax lower of gain OR

5/3 x (gross proceeds - £6000)

Question 21

If bought and sold for more than £6000

Answer 21

Chargeable in full

Question 22

Basic compounding formula

Answer 22

FV = PV x (1+ i) ⁿ

Where “n” is the number of years during which compounding occurs.

Question 23

Basic discounting

Answer 23

For basic discounting (discounting is the opposite of compounding):
PV = FV / (1+i)ⁿ

Question 24

EAR

Answer 24

EAR = (1+ i) (m) - 1

Question 25

Interest free loans formula

Answer 25

Average
(Two separate loan amounts, if one loan given and questions says some was paid of then use difference in both amounts)/ 2 = x ORI x (Number of months/12) =

Strict Method: Two separate loan amounts
Loan 1 x Number of months /12 x ORI% =
Loan 2 x Number of months/12 x ORI% =
Total = Add two together.

Question 26

Provision of living accommodation EXAMPLE

Answer 26

Fred has use of a house in London with an annual value of £3,000. It was bought last year for £300,000. The official rate of interest is 2.5%. What is the cash equivalent?

AV= £3,000
Additional Charge
(£300,000 - £75,000) @ 2.5%= 5625
Cash equivalent= £8,625

Question 27

Asset made available for private use EXAMPLE

Answer 27

At 6 April 2021, Rod is provided with a TV worth £5,000, for which his employer pays a monthly rental of £100. What is the cash equivalent of this benefit?

AV= £1,000 (20% x £5,000)

Hire/Rent
(£100 x 12)= £1,200= HIGHER

Question 28

Personal Allowance EXAMPLE

Answer 28

Bill has ANI of £105,000. To what PA is he entitled to in 2021/22?

• The 2021/22 PA is £12,570
• However, his ANI exceeds £100,000 by £5,000
• PA must be reduced by £5,000/2 i.e. £2,500
• Jon’s PA in 2021/22 is £10,070

Question 29

Tax Band Examples

Answer 29

Daniel £30,000

Daniel:
Is a basic rate tax payer as his income falls under £37,700
Total Tax payable = 30,000 @ 20% = £6,000

Question 30

Tax Band Examples

Answer 30

Lucy- £80,000
Her salary utilises the basic rate and higher rate band. Her tax liability is:
£37,700 @ 20% = £7,540
£42,300 @ 40% = £16,920
Total Tax payable = £24,460

Question 31

Tax Band Examples

Answer 31

Amandeep- £190,000
His salary utilises the basic rate, higher rate and additional rate band. His tax liability is:

£37,700 @ 20% = £7,540
£112,300 @ 40% = £44,920
£40,000 @ 45% = £18,000
Total Tax payable = £70,460