Osborne 4: Income from Employment

Question 1

Taxable cash basis but what is an exception to look out for?

Answer 1

If an employee is entitled to income but defers receipt.

Tax when entitled

Question 2

Watch out for pensions.

Answer 2

Is it contribution or payment?

Question 3

Income from Employment. Contract OF service.

Trading Income A contract FOR services

Answer 3

Need to do work YOURSELF?

Told HOW / Where / When ?

Regular wage with sick pay and HOLIDAYS?

No risk of CAPITAL or losses?

Employer provides EQUIPMENT

ONE employer (may be more)

Question 4

How to calculate Assessable Income from Employment

Answer 4

Gross income rec’d in the tax year.
PLUS assessable value of Benefits in Kind
LESS allowable deductions
Equals Assessable Income from Employment

Question 5

Private use of company car scale charge based on Cost or List price?

Answer 5

List
Scale charge is Deemed to include road tax, insurance, repairs & servicing so none of these are assessed separately (only fuel if also provided)

Question 6

Fuel scale charge (separate benefit from use of car benefit)

Answer 6

.

Question 7

What to watch out for with Car benefit in exam?

Answer 7

Often needs time-apportioned

Question 8

Accessories or modifications to company car before or at time car is first made available to employee

Normally Cost is added to list price. before calculating the benefit

When does this NOT apply?

Answer 8

Equipment to enable disabled person to use car.

Equipment necessary for the use of car in perfomance of duties (eg. towbar for trailer)

Special security equipment if necessary due to role. (eg bullet resistant glass)

Question 9

Accessories added later to company car.

How to handle?

Answer 9

Add to list and apply to whole tax year.

Except if

Question 10

Classic car over 15 years old at EOTY

and has market value that exceeds list and is >£15K

Answer 10

Use market value not list price

Question 11

Fuel benefit

4 things?

Answer 11

24,500 * same percentage as car.

Time apportioned (as is car)
NB for a period of unavailability to count must be >= 30 days

All or nothing (employee can reimburse FULL cost… or pay privately in first place)

Pure electric car 0% emissions there is no fuel benefit charge (i think this means employer can provide the electricity w/o a BIK arising)

Question 12

3 rules to qualify as pool car

Answer 12

• Be primarily used for biz purpose and any private use must be incidental
• Be used by several employees
• Not normally kept at employees home

Question 13

Vans

When is use of van not assessable

Answer 13

If used only to and from work and insignificant other mileage

Question 14

Vans

What if the van is zero emission?

Answer 14

Private use is 80% of normal amount

3490 * 80% = 2792 assessable amount

Question 15

Loans
How to calc benefit?

Exception 1?
Exception 2?

If written off?

Answer 15

Diff between interest that would be charged at HMRC rate (2.25%) and what was charged.

E1: If loan or loans outstanding remain £10K or less throughout year then no charge.

E2: If loan (any amount) is used to purchase equipment (except cars) wholly for biz use.

If loan w/o then whole amount is chargeable.

Question 16

Loans:

Where example is complex with part payment then 2 methods can be used.

1. Calculate exactly the interest figures based on balances owed for each proportion
2. Simple average method (EXAM will be this method)

Answer 16

1. Take loan balance start of tax year or start of loan.
2. Add balance end of tax year or end of loan.
3. Divide by 2 to get average.
4. Time apportion based on COMPLETE months.
   (Use 1st & last dates, ignore part payment dates)
5. Multiply by difference in HMRC rate and rate paid

Question 17

Living accommodation

Assessable amount based on ?

When would there be an additional assessment applied?

Answer 17

Higher of

Annual Value (based on rateable value)
Rent paid by the Employer (if they don't own it)

Additional assessment:
Accommodation purchased by employer if >£75K
Excess * 2.25 (HMRC Rate)

Question 18

Living Accommodation

Capital expenditure on accommodation between date of purchase and start of current tax year?

Answer 18

Increase the Cost figure by that amount.

If it was after start of current tax year, ignore for this year but include from next

Question 19

Living accommodation

Other living expenses such as electricity?

Answer 19

Add to the assessment

Question 20

Living accommodation

apportion for time?

If employee pays rent or similar?

Answer 20

Yes time apportion if appropriate. Do this at the end.

Rent or similar paid by employee gets deducted from benefit figure calculated

Question 21

Living accommodation

If flat was bought >6 years before employee moves in
what to remember?

And also remember??

Answer 21

Calculation of additional charge should be based on market value when first occupied by employee.

So instead of:
PP - 75K * 2.25%
Use
MV - 75K * 2.25%

In this case you wouldn’t add on any CapEx because that would already be in the MV.

Question 22

Living accommodation

To be exempt must be (3)
How to handle?

Often referred to as job-related accommodation

Answer 22

• Employee is a representative occupier (eg. caretaker)
• Customary to provide accom (eg. vicar)
• Accom provided for security reasons
• Annual value and additional charge are not counted.
• Running expenses are (except CT/Water) but restricted to 10% of salary

Question 23

Provision of assets

Assessed on MV of asset at time of giving.
If loaned … how to calculate BIK ?

If subsequently given … how to handle?

Applies to stuff loke entertainment system , also furniture owned by employer in accomm used by employee

Answer 23

Loaned - Higher of:

• 20% of MV when first provided.
• Rental or hire charge paid by employer.

Apply each tax year that it was used.

Given - Higher of:

• MV at Date of Transfer
• MV when first provided less BIK already assessed

Question 24

Voucher
Assessed on?

Company CC
Assessed on?

Answer 24

Voucher: If its spend in specified way then cost to employer rather than face value (eg. £500 voucher for JL that cost employer £470 would be assessed at £470)

CC: Everything spent except

• biz expenditure that qualifies as allowable.
• something that’s assessed separately eg. Fuel

Question 25

Anything not passing the ‘WEN’ test is a BIK .. but there are 2 groups of BIKs taxable & tax free

This is a List of non-taxable benefits (BIKS) (ie excluded from benefits included in assessable employment income).

• Pmt qualifying award - staff suggestion scheme <=£5K
• Long service >20yr (& no award prev 10) £50 p/y can be shares or asset
• Relocation up to £8K on change of residence due to change in place of work
• Retraining cost to help get another job
• Cost of work-related training for theoretical or practical skills u r reasonably likely to need in current or future jobs with your employer.
• Cost of annual staff party, open to staff generally, and cost no more than £150 p/h
• Scholarships to employees who attend a FT course for at least 1yr at recognised academic establishment. Up to £15,480 p/y (provided it does not relate to work for employer in hols)
• Scholarships to emploees kids from trust fund open to public. Not more than 25% of total payments relate to employees)
• Airmiles (as long as earned same way as public; can be for biz expenditure)
• Damages or compensation which is employment related
• Reimbursement of expenses incurred on behalf of employer, OR that are an allowable deduction

Answer 25

• Electricity to fuel a ‘zero emission’ car or van.
• Use of van if non-biz is just to/fro work + incidental
• Private use bicycle & helmet if used to/fro work.
• Travel on employers buses if mainly used for qualifying journeys
• disables ppl cost of travel to/fro work
• Childcare provided, eg creche (in ref mat)
• Incidentals while working away (uk £5 / abroad £10)
• Overseas med insurance/treatment
• Workplace parking (in ref mat)
• Loan at low/nil rate if:
  
  • Does not exceed £10K any time during year.
  • Is for equipment entirely for biz use.
• Meals at staff canteen (if avail to all employees)
• In-house sports facility (if not avail to public)
• Counselling
• One health screen & One medical check-up
• Free eye checks for PC-using employees
• Contributions to pension
• One mobile per employee
• £6 p/w work from home
• late night taxi (later than usual; after 9pm; 60 p/y)
• Goodwill entertainment / Gifts

Question 26

Trivial BIK

Conditions to meet ?

Answer 26

1. Cost per employee does not exceed £50 (or average if hard to calc exact cost p/e)
2. The benefit is not cash or a cash voucher
3. Employee not entitled to the benefit as part of contractual obligation
4. The benefit is not in recognition of the employees performance of their duties

NB: Can also apply to benefits provided to employees family

Question 27

Trivial BIK

Examples

Answer 27

• Take employee out for birthday meal
• Gift at Xmas (not performance related)
• Non-cash voucher on birth of child
• Send flowers to sick employee

Question 28

Trivial BIK

Examples of not-allowable

Answer 28

• If gift exceeds £50 whole amount is taxable not just excess
• Gift recognising hitting performance targets is wholly taxable

Question 29

Trivial BIK

Example of combining for best result employee

Answer 29

If employer provided 2 functions , one cost £140 p/e & the other £40 p/e …

Both can be exempt:
£140 under the staff party benefit exemption
£40 under the trivial benefit exemption

Question 30

Allowable Deductions
(Opposite of BIKs)

Must be …

Answer 30

Expenditure must be
Wholly, exclusively and necessarily
incurred in the performance of the duties of the employment. (If not it’s considered a BIK!)

So strictly must be something that the employment duties could not be carried out without. (ie not just make it more easy or more efficient)

Eg clothing not allowable even if bought for/worn only at work.

There are specific instances where expenditure is allowed outside this stringent test but should use this basic rule as default.

Question 31

Allowable Deductions
(Opposite of BIKs)

1. Expenditure reimbursed by employer

Answer 31

If the original expenditure is allowable then the reimbursement is exempt
(in which case spend/reimburse cancel each other out so no impact on tax)

If the expenditure doesn’t meet the WEN rule then the Reimbursement will be taxable.

Question 32

Allowable Deductions
(Opposite of BIKs)

2. Specific expenditure types to know - Own Transport

System known as AMAP
Approved Mileage Allowance Payments

Answer 32

Travel site to site not commute to work.

Cars & Vans:
45p up to 10K Miles then 25p

Motor cycles:
24p

Bicycles:
20p

If rate paid is higher ,excess is ‘Net taxable benefit’
If lower then shortfall is a ‘Net allowable deduction’

Question 33

Allowable Deductions
(Opposite of BIKs)

3. Specific expenditure types to know - Entertaining & Subsistance

Answer 33

Expenditure incurred by employee on costs of spending time away from normal place of work - normally allowable

Entertaining employer’s clients only allowable if employer has reimbursed the employee - then the benefit will not be chargable.

Question 34

Allowable Deductions
(Opposite of BIKs)

4. Specific expenditure types to know - Prof fees & Subs

Answer 34

Professional fee or sub to an organisation that is relevant to the employment then cost is allowable expense.

HMRC has approved list (inbl AAT)

Where employer pays the sub then the benefit is cancelled out by the allowable deduction

Question 35

Allowable Deductions
(Opposite of BIKs)

5. Specific expenditure types to know -Pension Contribs

Answer 35

Allowable deductions within Employment Income.

If contrib employee makes is to a scheme run by employer then deduction often made automatically by before PAYE is operated on balance of income.
In this situ amounts on P45/P60 represent income after the employee’s contrib has been deducted.

Question 36

Allowable Deductions
(Opposite of BIKs)

5. Specific expenditure types to know -Payroll giving scheme

Answer 36

Where arrangement made between employer and an approved Payroll Giving Agency, employees can authorise deductions (no limit) through payroll of donations to charity.

Allowed as a deduction from earnings, and employer can operate PAYE on income after deduction (same as pension contribs)

Employer passes gross amount to the PGA which distributes to the names charities

Question 37

Calc:

Gross Salary
LESS ADs paid by ER (eg C.pension/p.giving)
= Amount used for PAYE/ (which includes NICs)

ADD assessable value of BIKs (Vouchers)
LESS ADs not paid by ER (Subs, SH.pension, M’age)
= Assessable income from Employment (for TRet’n)

(AD = Allowable deduction

Answer 37

When laying out in exam looks like you don’t show eg.

• ER contribs to pension.
• Reimbursement of allowable costs

These are ‘Allowable Deductions’
Don’t confuse with Tax free BIKs

Question 38

Redundancy payments

Answer 38

Redundancy payments (comp for loss of employment) are not strictly emoluments.

Types and rules are complex but generally first £30K is Exempt

Question 39

NIC Class 1 contributions

Answer 39

Employee (primary) rates

Amount of NIC paid by EEs known as primary contribs.
There are various catagories of employee
Most common is A

A: earnings above primary threshold (PT) up to and including the Upper Earnings Limit (UEL) are charged at 12%
Balance above the UEL are charged at 2%

Question 40

NIC

Calculation of Employees’ (Primary) contributions

Answer 40

1. Take the annual PT/UEL figs given in ref & break down into monthly/weekly (Osborne rounded up/down as per the decimal places)
2. Then do either:

Lower rate taxpayer:
Salary -PT * 12%

Higher rate taxpayer (UEL is £50K p/a):
*UEL-PT * 12% weekly or monthly pay given.
Salary -UEL * 2%

Remember if earning above Lower Earnings Limit (£120 p/w not given in ref mat) but below PT they get credited with making contribs at 0% which counts towards State pension & other benefits.

Question 41

NIC

Calculation of employer (secondary) rates

Answer 41

1. Take the annual secondary threshold (ST) fig given in ref & break down into monthly/weekly (Osborne rounded up/down as per the decimal places)
2. Then do (for all employees … no diff tax levels here):

Salary -ST * 13.8% (rate in ref mat)

Question 42

NIC

‘Earnings’ for class 1 NIC purpose

Answer 42

Cash payments (excluding BIKS)

These below are deducted for TAX but not NICS!

• Deduct contributions to appr’d COMPANY pensions.
• Deduct payroll giving

Question 43

NIC for Directors

EE & ER NICS apply but what are special rules?

Answer 43

Directors NICs must either be calc on cumulative basis throughout the year

or calc as normal on each pay day.

BUT a YE check is calc’d on a cumulative basis.

(Prevents exploiting the 2% band)

Question 44

Employers’ Class 1A NICS

Class 1 NICs apply to earnings excluding BIKs
but
Class 1A NICs are made by ERs and relate to taxable value of BIKs provided to employees.

what is Class 1A rate?

Answer 44

13.8 same as ER Class 1 NICs but no threshold.

Question 45

For a good summary of BIKs See

https://www.ridgefieldconsulting.co.uk/advice-and-news/tax-benefits-in-kind/

Answer 45

.

Question 46

Is there additional NIC payable on company car benefit and fuel benefit?

Answer 46

No

ER pays Class 1A but employee doesn’t

Question 47

Employers’ Class 1B NIC

This class relates to PAYE settlement agreements (PSA) that have been entered into by employers & HMRC

Rate is same as Class 1A (13.8% , no threshold like secondary threshold)

Answer 47

From HMRC:
A PAYE Settlement Agreement (PSA) allows you to make one annual payment to cover all the tax and National Insurance due on minor, irregular or impracticable expenses or benefits for your employees.

If you get a PSA for these items you will not need to:

• put them through your payroll to work out tax and National Insurance
• include them in your end-of-year P11D forms
• pay Class 1A National Insurance on them at the end of the tax year (you pay Class 1B National Insurance as part of your PSA instead)

Question 48

NIC Employment allowance

Reduce ER NIC by up to £4K by claiming EA
Most can claim but an Exception is?

(Amount of allowance doesn’t exceed ER’s NIC)

Answer 48

companies with only one director/employee

Question 49

Most employees are category A

These don’t pay NICs (kids & pensioners)

• Under 16’s (X)
• Over pensionable age (C)

But ERs pay secondary NICs on the pensioners (C)
(same rate as on As)

There are special rates for ER contribs relating to

• Apprentices under age 25 (H)
• Employees under age 21 (M)

Answer 49

In exam would be provided with category and data on the rates & threshold for these special categories

(only Class 1A rate is given in ref mat)

Question 50

Allowable Deductions are generally expenditure that meets the WEN rule

but there are some specific ADs that don’t meet WEN but are still Allowable:

Answer 50

These include:

Mileage @ approved rates
Prof fees & subs
Pension contribs
Payroll giving

Question 51

What amounts are NICs paid on (EE & ER)

Answer 51

NICs are paid by EEs on their CASH earnings …. but after C.Pension contribs & P.Giving (Class 1)

But by ERs on CASH earnings …. but after C.Pension contribs & P.Giving (Class 1)
AND also on BIKs (Class 1A)

As an employee, you automatically pay Income Tax and National Insurance on your wages through the PAYE system (So NICs are part of PAYE system)

Question 52

Is use of a ‘zero emission’ van for biz & private use assessable??

Answer 52

YES but only at 80% of the normal amt.

Question 53

Is fuel in the form of electricity asessable?

Answer 53

NO

Neither for electric car or van

Question 54

electric smart car charging
The Mileage Rates for Electric or Hybrid Cars
4 November 2020
Slava Knazevs
Reducing Tax, Payroll, People

These benefits come with one small drawback: the mileage allowance you can claim for using an electric or hybrid car for business purposes.

Can You Claim Mileage for Electric Cars?
The good news is that tax-free Mileage Allowance Payments (MAPs) –– used to reimburse business mileage clocked up by employees using their own vehicles for work –– apply to all cars and vans no matter what fuel they use.

Employees with electric cars can, therefore, claim the same tax-free Approved Mileage Allowance Payments (AMAPs) as petrol or diesel cars. Some things to note:

Employees can claim 45p per mile for the first 10,000 business miles in the financial year, and 25p per mile thereafter.
Any reimbursement by the employer for business mileage is tax and NIC free provided it’s no higher than the above AMAP rates.
Reimbursements over the above AMAP rates are taxable on the employee and must be reported to HMRC.
If the employer reimburses at a rate lower than the AMAP rates, the employee can still claim tax relief from HMRC on the difference.

It’s important to note that an employee may receive a taxable benefit in connection with their personal electric car if their employer:

• Pays for a vehicle charging point to be installed at the employee’s home.
• Provides a charge card to allow access to commercial or local authority vehicle-charging points.
• Pays to lease a battery for the employee’s car.
• There is no benefit-in-kind charge for employees charging their own cars at a workplace charging station, as HMRC does not consider electricity to be a fuel.

Answer 54

I think for employee owned electric car there is no chargable benefit if charged at employers charge point.

I think there IS if the employer installs a CP at the employees home OR gives them a fuel card for a commercial CP

Question 55

Fuel benefit

All or nothing but what if fuel provided for one car and then car is changed and no fuel for 2nd car.

Answer 55

A separate charge applies for each car, except replacement cars.

You time-apportion it for the time car is available to use …so
if Car 1 provided for 5m doesn’t have fuel
Car 2 provided for other 7m does have fuel

You would calc it on 24,500 * % Car 2 then *7/12

If car 2 was unavailable for a month (must be period at least 30 days)
… you would apportion accordingly
(… similar to the car benefit itself)

If there’s a replacement car similar type you would not time apportion..

Question 56

Furniture provided taxed on cost to employer?

Answer 56

No - MV when first provided

Question 57

What do I keep forgetting when working out % for hybrid cars?

Answer 57

Still need to add the 2% to the electric range % given if it’s not new..

Question 58

What to remember about the van benefit charge amounts?

Answer 58

They are fixed … no need to faff with % and list price.

Same with private fuel charge

Question 59

NICS

How to handle pension contributions ?

How to handle expenses that meet the WEN test?

Answer 59

Ignore

No deduction when calculating earnings for NICS

Question 60

When calculating NICs

what to remember about the Class 1A calc?

Answer 60

Employers don’t pay class 1A on exempt benefits like workplace childcare

Question 61

Earnings for Class 1 NICs purpose

Answer 61

Anything ‘cash’ is subject to NICs:

So need to distinguish between benefits that are BIKs like a mobile phone and ‘cash’ benefits.

Hopefully in exam it will be clear - might be excess mileage payments or vouchers.

Other big difference is that contribs to company pension scheme and payroll giving scheme are not subject to Income tax but ARE not deducted for NICs

Question 62

Taxable benefit

Home working £6 per week but BPP P1 T3 seems to suggest it can be more if evidence is provided.

Answer 62

.

Question 63

staff suggestion

if payment is over threshold - is the lot taxable?

Answer 63

No

only excess

Question 64

staff party costing £220 - partially exempt

Answer 64

No

Must be under £150

Question 65

NICS

When calculating Class 1 employee
do you deduct pension contributions or WEN expenses (not reimbursed)
of payroll giving

Answer 65

NO no no

Just take salary.

• Cash expense payments that are not taxable are generally not subject to Class 1 NIC (eg reimbursed exp)
• However where expenses are paid that are taxable (mileage over AMAP rates) these WILL be subject to NIC