Seminar 3 Flashcards
How is employment income assessed?
Employment income is assessed to income tax in the tax year in which it is received
Not the year it was earned
What are the two dates income is deemed to have been received?
The date that income is received by the employee
The date that the employee becomes entitled to receive the income
What are various forms of employment income?
- Wages & salaries
- Bonuses, commissions & fees
- Reimbursed expenses & expense allowances
- tips & gratuities
- pensions arising from employment
- benefits in kind
- certain social security benefits
Benefits in kind = ?
Benefits in kind consist of employment income which is received in the form of goods or services rather than money
Is income tax charged on all earnings from employment or just salaries?
Income tax is charged on all earnings from employment, including benefits in kind
How are employees taxed with regards to benefits in kind?
They’re taxed on the cost to the employer (the initial price)
Which benefits in kind are subject to special valuation rules?
- 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
What are the 3 types of taxable vouchers?
- Cash vouchers (exchangeable for cash)
- Credit tokens (used to obtain money)
- Vouchers exchangeable for goods & services
How is employee living accommodation taxed if the employer owns the accommodation?
the basic taxable benefit is equal to the annual value of the property
How is employee living accommodation taxed if the employer rents the property?
The taxable benefit is higher of
- the annual value of the property
- the rent paid by the employer
What happens if a property cost an employer more than £75,000?
There’s an increase in the taxable benefit
How is the cost of a property calculated?
Purchase price + cost of improvements - capital contributions made by the employee
How is the increase in taxable benefit with living accommodation calculated?
By applying official rate of interest to the amount by which the cost of the accommodation exceeds £75,000
What happens tax wise if an employee accommodation has been owned by the employer for more than 6 years before the employee occupied it?
Market value at occupation is used instead of acquisition price
Are employees taxed on ancillary services as part of their employer living accommodation?
Yes
Ancillary services such as heating, lighting, council tax, cleaning, repairs, decorating etc.
Are employees taxed on the provision of a motor car for private use?
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)
How is taxable benefit on employer cars calculated?
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
What are the applicable percentages for cars provided for private use based on CO2 emissions?
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
If the car isn’t available for the whole tax year or is off the road, is the benefit reduced?
Yes, proportionately
Does fuel provided to an employee give rise to a further taxable benefit?
Yes
How is the taxable benefit for fuel calculated?
Percentage is applied to the taxable amount
The percentage is applied to a fixed amount of £25,300
If a motor van is made available for an employee’s private use, what is the taxable benefit?
£3,600
Where private fuel is used, there’s an additional taxable benefit of £688
How are assets loaned to employees for private use taxed?
Annually on 20% of the market value of the asset when first provided
What are examples of exempt employment benefits?
- Trivial benefits
- Free meals in canteen
- annual staff parties
- provision of parking spaces
- approved mileage allowances
- pension contributions
What are ‘trivial’ benefits?
Benefits in kind costing no more than £50 are regarded as trivial and are exempt from both income tax and NIC’s
Do trivial benefits’ exemption apply to cash and cash vouchers?
No
How should one approach a benefits question?
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
What does NIC’s stand for?
National insurance contributions
How does the PAYE system work?
Employers are required to deduct income tax and NICs from employees when paying them their wages and salaries
When must deducted PAYE amounts be paid over to HMRC?
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
How do tax codes work?
HMRC issues a tax code for each employee each tax year which represents the amount that the employee can earn before paying income tax
What does an employee’s tax code take into account?
- Personal allowances
- tax reliefs and allowable expenses
- any adjustments for tax underpaid or overpaid in previous years
What happens if total allowances - total deductions gives a positive figure, what happens to the tax code?
Remove the last digit and add a letter L at the end
This shows that the employee is entitled to personal allowance
If a marriage allowance is made, what impact does it have on tax code?
The letter for the tax code will be N or M respectively
If total allowances - total deductions give a negative figure, what impact does this have on the tax code?
The tax code will have a K at the beginning
The K means that the taxable pay of the employee is increased
What can a tax code also indicate?
Unpaid tax from earlier years
What does L, M, N, 0T, NT, D0, D1 indicate on one’s tax code?
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
