Income tax Flashcards
3 Stages to determine UK residency
- Is the person automatically resident overseas? (2 tests)
- Is the person automatically UK resident? (3 tests)
- None above satisfied, use table.
If a person is UK resident in a particular tax year they must
pay income tax on their
UK and overseas income.
If a person is not UK resident, then they
do not pay UK income tax on their overseas
income, they only pay on their UK income
STAGE 1 - Is the person automatically resident overseas?
If one of the two tests below are satisfied, then the person is automatically resident
overseas and will only pay UK income tax on his UK income.
Test 1 – Short stay in UK
In UK for less than 16 days in the tax
year.
OR
In UK for less than 46 days in tax year
and never previously UK resident.
Test 2 – Employed abroad
Employed overseas and visits UK for
less than 91 days during the tax year.
STAGE 2 - Is the person automatically UK resident?
If any of the tests below are satisfied, then the individual is automatically UK resident
and will pay UK income tax on his worldwide earnings. If none of the above tests are
met, then there are detailed rules to follow to determine residency.
Test 1 - Long stay - Spends at least 183 days in the UK in the tax year
Test 2 – Nowhere else to
go. Only home is in the UK
Test 3 - Employed in
the UK. Employed full time in
the UK.
Ties
- Close family in the UK (Wife, child).
- House in the UK which is used during the tax year. (at least 1 night during the tax year)
- In the UK for more time than any other country.
- In the UK for more than 90 days in either of the previous 2 tax years.
- Doing substantive work in the UK. (40 days or more)
The main test of an employment as opposed to self-employment is
the existence of a
contract of service (employee) compared with a contract for services (self employed).
What signs hint at someone being an employee
Integral position - E.g Chairman, you cannot be a chairman and not be employed.
Risk - An employee does not bare the financial risk of the business, they will be paid regardless.
Control - The employer controls the manner and method of work.
Legal rights - The employee is entitled to benefits such as holiday pay and pension.
Equipment - An employee is not obliged to use their own equipment
Exclusivity - the employee is obliged to worjk exclusivly for their employer and cannot provide a replacement or bring helpers.
Emoluments are taxable on the earlier of 2 dates:
1 When a person becomes entitled to payment of the earnings
2 When payment is made
Expenses that you are allowed to deduct from employment income
- Contributions to an occupational pension scheme.
Note that Payments to a personal pension scheme are NOT allowable deductions. More in Topic Pensions. - Travel, subsistence and entertaining incurred wholly, exclusively and necessarily in the performance of duties of employment
- Subscription to a professional body (e.g.) ACCA
Note that payments for gym memberships are NOT allowable deductions. - Deficit on a mileage allowance - Topic The authorised mileage allowances.
- Donations to charity
Note that Donations to political parties are not allowable deductions. - Capital allowances are available for plant and machinery provided by an employee for us in his duties Topic Capital allowances
Following the end of each tax year, the employer must submit the P11D to HMRC and the employee by
6 July.
The P60 must be provided by X following the year of assessment.
31 May
Monetary value of benefit - personal use of asset
- We must find the market value of the asset when it was first given to the employee.
- Multiply this by 20%.
- Multiply this value by the number of weeks/months the employee had access to the asset.
For example, multiplying by 9/12 means that the employee had access to the asset for 9 out of 12 months in the tax year. - Deduct any rent that the employee pays to the employer to use the asset.
How to calculate the monetary value of this gift? - a previously personally used asset
The monetary value will be the higher of 2 figures:
Figure 1:
* Find the cost to the employer (the original market value of the asset).
* Deduct any use benefits that the employee has already paid income tax on.
Figure 2:
* Find the market value of the asset at the date of the gift to the employee.
Where an employee uses an employer’s van for journeys between home and work and other private use is insignificant there is no benefit.
2. Where private use is not insignificant the tax charge is
£3,960 p.a.
