Formulas/ Question methods Flashcards
Provision of living accommodation – Cash Equivalent
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
Company Car – Cash Equivalent
- 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)
Private Fuel – Cash Equivalent
- £24,600 x “relevant percentage” (from company car calc)
- No taxable benefit if employee reimburses FULL cost of private fuel
Beneficial loans – Cash Equivalent
Average Method- Average loan balance x
(ORI less interest rate)
Strict Method- Actual loan balance x
(ORI less interest rate)
Beneficial Loan- Average Method
- Add together the two loan amounts in a year
Divide by 2
Multiply by the ORI
Beneficial Loan- Strict Method
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
Income Tax Computation- Step plan 1-4 (Taxable Income)
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’.
Income Tax Computation- Step plan 5-8 (Income tax due)
- Tax each source of income at appropriate rates
- Add up tax to reach ‘Income tax liability’
- Add back child benefit charge / deduct marriage allowance (if relevant).
- Deduct tax witheld at source to reach income tax payable /repayable.
CGT- Gain/Loss calculation
Gross sale proceeds
- Incidental costs of sale
= Net sale proceeds
Acquisition costs
- Incidental costs of acquisition
- Enhancement expenditure
= Net sale proceeds - costs
Valuation of quoted shares
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
Chattels: Non-wasting Chatel 5/3 rule
5/3 x (Gross proceeds - £6,000)
Proceeds > £6,000
Cost < £6,000
Chargeable Gain= lower of
Normal gain calculation- Proceeds - cost
Chattels: Deemed Proceeds Rule
Proceeds < £6k
Cost > £6k
Chattels: Exempt
Cost < £6k
Proceeds < £6k
Chattels: Normal Gain Calculation
Proceeds > £6k
Cost > £6k
Rate of CGT depends on two factors
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%
Flat formula/ Annual value
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
Cash equivalent of benefit provided layout
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
Non wasting chattel
- Expected life > 50 years
- Exempt under £6000, chargeable over
If bought > £6000 but sold for < £6000
Allowable loss, but proceeds deemed = £6000
If cost < £6000 but sell for more
Tax lower of gain OR
5/3 x (gross proceeds - £6000)
If bought and sold for more than £6000
Chargeable in full
Basic compounding formula
FV = PV x (1+ i) ⁿ
Where “n” is the number of years during which compounding occurs.
Basic discounting
For basic discounting (discounting is the opposite of compounding):
PV = FV / (1+i)ⁿ
EAR
EAR = (1+ i) (m) - 1
Interest free loans formula
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.
Provision of living accommodation EXAMPLE
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
Asset made available for private use EXAMPLE
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
Personal Allowance EXAMPLE
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
Tax Band Examples
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
Tax Band Examples
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
Tax Band Examples
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
