Seminar 3

Question 1

How is employment income assessed?

Answer 1

Employment income is assessed to income tax in the tax year in which it is received

Not the year it was earned

Question 2

What are the two dates income is deemed to have been received?

Answer 2

The date that income is received by the employee

The date that the employee becomes entitled to receive the income

Question 3

What are various forms of employment income?

Answer 3

• Wages & salaries
• Bonuses, commissions & fees
• Reimbursed expenses & expense allowances
• tips & gratuities
• pensions arising from employment
• benefits in kind
• certain social security benefits

Question 4

Benefits in kind = ?

Answer 4

Benefits in kind consist of employment income which is received in the form of goods or services rather than money

Question 5

Is income tax charged on all earnings from employment or just salaries?

Answer 5

Income tax is charged on all earnings from employment, including benefits in kind

Question 6

How are employees taxed with regards to benefits in kind?

Answer 6

They’re taxed on the cost to the employer (the initial price)

Question 7

Which benefits in kind are subject to special valuation rules?

Answer 7

• Vouchers
• Living accommodations
• Expenses connected with living accommodations
• Cars and fuel provided for private use
• vans provided for private use
• assets made available for private use

Question 8

What are the 3 types of taxable vouchers?

Answer 8

• Cash vouchers (exchangeable for cash)
• Credit tokens (used to obtain money)
• Vouchers exchangeable for goods & services

Question 9

How is employee living accommodation taxed if the employer owns the accommodation?

Answer 9

the basic taxable benefit is equal to the annual value of the property

Question 10

How is employee living accommodation taxed if the employer rents the property?

Answer 10

The taxable benefit is higher of
- the annual value of the property
- the rent paid by the employer

Question 11

What happens if a property cost an employer more than £75,000?

Answer 11

There’s an increase in the taxable benefit

Question 12

How is the cost of a property calculated?

Answer 12

Purchase price + cost of improvements - capital contributions made by the employee

Question 13

How is the increase in taxable benefit with living accommodation calculated?

Answer 13

By applying official rate of interest to the amount by which the cost of the accommodation exceeds £75,000

Question 14

What happens tax wise if an employee accommodation has been owned by the employer for more than 6 years before the employee occupied it?

Answer 14

Market value at occupation is used instead of acquisition price

Question 15

Are employees taxed on ancillary services as part of their employer living accommodation?

Answer 15

Yes

Ancillary services such as heating, lighting, council tax, cleaning, repairs, decorating etc.

Question 16

Are employees taxed on the provision of a motor car for private use?

Answer 16

Yes

The taxable benefit is based upon the list price of the car

(reduced by any capital contribution made by the employee up to a maximum of £5,000)

Question 17

How is taxable benefit on employer cars calculated?

Answer 17

Taxable benefit is calculated by applying a percentage to the car’s list price

The applicable percentage depends on the car’s emission rating (CO2) rounded to the nearest 5g/km if over 75g/km

Question 18

What are the applicable percentages for cars provided for private use based on CO2 emissions?

Answer 18

Zero - 2%
1-50g/km - 2-14%
51g/km-54g/km - 15%
55g/km-59g/km - 16%
60g/km-64g/km - 17%
65g/km-69g/km - 18%
70g/km-74g/km - 19%
75g/km - 20%
Each additional 5g/km - 1% increase

Question 19

If the car isn’t available for the whole tax year or is off the road, is the benefit reduced?

Answer 19

Yes, proportionately

Question 20

Does fuel provided to an employee give rise to a further taxable benefit?

Answer 20

Yes

Question 21

How is the taxable benefit for fuel calculated?

Answer 21

Percentage is applied to the taxable amount

The percentage is applied to a fixed amount of £25,300

Question 22

If a motor van is made available for an employee’s private use, what is the taxable benefit?

Answer 22

£3,600

Where private fuel is used, there’s an additional taxable benefit of £688

Question 23

How are assets loaned to employees for private use taxed?

Answer 23

Annually on 20% of the market value of the asset when first provided

Question 24

What are examples of exempt employment benefits?

Answer 24

• Trivial benefits
• Free meals in canteen
• annual staff parties
• provision of parking spaces
• approved mileage allowances
• pension contributions

Question 25

What are ‘trivial’ benefits?

Answer 25

Benefits in kind costing no more than £50 are regarded as trivial and are exempt from both income tax and NIC’s

Question 26

Do trivial benefits’ exemption apply to cash and cash vouchers?

Answer 26

No

Question 27

How should one approach a benefits question?

Answer 27

Is the benefit exempt?

If not, calculate the value of the benefit for the tax year

Time apportion the benefit of not provided for the entire tax year

Deduct any employee contributions

Question 28

What does NIC’s stand for?

Answer 28

National insurance contributions

Question 29

How does the PAYE system work?

Answer 29

Employers are required to deduct income tax and NICs from employees when paying them their wages and salaries

Question 30

When must deducted PAYE amounts be paid over to HMRC?

Answer 30

Within 17 days of the end of a tax month

If an employer’s average monthly PAYE is less than £1500, they may take quarterly payments instead of monthly

Question 31

How do tax codes work?

Answer 31

HMRC issues a tax code for each employee each tax year which represents the amount that the employee can earn before paying income tax

Question 32

What does an employee’s tax code take into account?

Answer 32

• Personal allowances
• tax reliefs and allowable expenses
• any adjustments for tax underpaid or overpaid in previous years

Question 33

What happens if total allowances - total deductions gives a positive figure, what happens to the tax code?

Answer 33

Remove the last digit and add a letter L at the end

This shows that the employee is entitled to personal allowance

Question 34

If a marriage allowance is made, what impact does it have on tax code?

Answer 34

The letter for the tax code will be N or M respectively

Question 35

If total allowances - total deductions give a negative figure, what impact does this have on the tax code?

Answer 35

The tax code will have a K at the beginning

The K means that the taxable pay of the employee is increased

Question 36

What can a tax code also indicate?

Answer 36

Unpaid tax from earlier years

Question 37

What does L, M, N, 0T, NT, D0, D1 indicate on one’s tax code?

Answer 37

L - you’re entitled to the standard tax free personal allowance

M - received a transfer of 10% from partners personal allowance

N - transferred 10% of personal allowance to partner

0T - personal allowance used up, employer doesn’t know how much to tax you

BR - all income is taxed at basic rate

D1 - all income is taxed at additional rate 45%

D0 - all income is taxed at higher rate 40%

NT - not paying tax on any of the income

K - income that is being taxed another way that is worth more than tax free allowance