Topic 5- Employment Income

Question 1

If a contract is not present then what following matters/factors would be considered for employment income?

Answer 1

Integration, control, Financial Risk, Equipment, Work performance & correction, Holidays and sickness benefit, exclusivity

▪ Obligation of employer to offer work / obligation of employee to undertake work (Who controls the work?)

▪ Employer controls the manner and method of the work (can they send someone else?)

▪ Employee being entitled to sick pay and holiday pay (I, PAYE, Auto enrolment pension)

▪ Individual is committed to work a specified number of hours

▪ Individual does not provide his own equipment (uniform)

▪ Individual is obliged to work personally and exclusively for the employer

▪ The economic reality (monetary stability) of self-employment is missing (Pay cheque)

Question 2

what is the definition of basis of assessment?

Answer 2

When we are taxed

Question 3

what is the definition of assessable earning?

Answer 3

What we are taxed on

Question 4

What are the list of ‘Earnings’ and what basis are they assessed?

Answer 4

They are assessed on a receipts basis (When it was received) regardless of when they are earned

▪ Salary
▪ Bonus
▪ Commission 
▪ Round sum allowances
▪ Benefits- BIK

Question 5

How is the date of receipt chosen?

Answer 5

The date of receipt is the earlier of the following:

▪ Actual payment of, or on account of, earnings.
▪ Becoming entitled to such a payment.

Entitlement e.g. if you were entitled to bonus on 31//03/19 but got paid on 31/06/19. This would be accounted for in 18/19 as that is when you were entitled to it

Question 6

What are the list of expenses allowed by status / what are allowable deductions?

(Incurred wholly, exclusively and necessarily in the performance of duties)

Answer 6

▪ Contributions into Occupational pension schemes
▪ Fees/subscriptions to professional bodies (provided approved by HMRC)
▪ Payments to charity (payroll deduction scheme)
▪ Expenditure on work travel when incurred necessarily in the performance of the duties of the employment

and any other expenses incurred for wholly and exclusively and necessarily in the performance of those duties

Question 7

What is additional income after deducting the allowable approved HMRC mileage allownace called and what happens to this?

Answer 7

Benefit in kind. It is added as an income in the working

Question 8

What are the list of employee benefits that are exempt?

Answer 8

▪ EMPLOYERS contributions to a registered pension scheme
▪ Pension advice of up to £500 that employer is offering
▪ Subsidised canteen - available to ALL employees
▪ 1 Car parking space
▪ 1 mobile phone per employee. 2nd phone BIK (Cost x 20%!)
▪ Work related training (Acca/aca)
* Work buses for home to work travel
▪ Sporting or recreational facilities available to employees generally and NOT to the general public
▪ Welfare counselling
▪ Staff parties (up to £150 p/a) per employee
▪ Workplace nurseries
▪ Relocation expenses (up to £8,000) If more, add as income
▪ Job related accommodation- light house keeper in the light house
▪ Overnight expenses of working away from home up to £5 per night in the UK and £10 per night overseas. If spent more than £5 the WHOLE amount will be BIK
▪ Loans ≤ 10,000. If more, it’s potential BIK
▪ Employer contributions towards additional household costs incurred by an employee who works wholly or partly at home. e.g. printer ink cost
▪ up to £4 per week or £18 per month towrads additional household costs where the employee works from home
▪ Medical treatment of up to £500 per year per employee to enable an employee to return to work.
▪ Trivial benefits which do not cost more than £50 per employee provided these benefits are not cash or a cash voucher (NB retail store vouchers are not cash vouchers so allowed. Cash vouchers can be spent in many different stores) .

Question 9

What are the list of benefits that are taxed on for all employees?

Answer 9

▪ Mileage
▪ Car
▪ Van
▪ Fuel
▪ Loan from employee
▪ Asset for private use
▪ Accommodation if not job related

Question 10

What defines living accommodation expenses from being taxed and exempt?

Answer 10

▪ Job related expenses are exempt i.e. military, nanny, care taker, light house
▪ Not job related are ‘Perks’ so therefore should be taxed. They are known are benefit in kind

e.g. company has a new office, employer pays for the apartment and you move. If the employee didn’t live in that area, he’d have to pay for the rent anyway so therefore this is a perk- Benefit in Kind.

Question 11

How are living accommodation BIK calculated?

Answer 11

▪ 1) Basic charge = higher of This first

(a) Annual value (Rateable value)
(b) Rent paid by employer for the building

THEN ADD THE FOLLOWING IF OWNED

▪ 2) Expensive accommodation charge. This rule is ONLY applicable if the company owns the property and if the ORIGINAL cost >75K

Expensive accommodation charge = (Cost - £75,000) X ORI (2.5%) x Number of months

Cost = PURCHASE price (Including improvements UP TO start of tax year)

**where the property was purchased more than six years before first being provided to the employee, then the cost figure is replaced by the market value when it was first provided (again plus any subsequent improvements).

Question 12

What 2 important things must be thought of when calculating living accommodation expenses?

Answer 12

▪ 12 months? If not, pro rata it

▪ Employee contributions? This reduces the BIK

Question 13

How are provision of services calculated in living accommodation?

Answer 13

▪ Use of furniture (TV, Sofa)- 20% p/a of MV when first provided (usually this is cost)

▪ Household expenditure such as bills of heating- Cost to the employer

Question 14

What is the definition of a job related accommodation

Answer 14

✓ Where it is necessary in the performance of the employees duties
✓ To enable better performance and it is customary
✓ Where there is a special threat to the employee’s security and is part of special security arrangements. (Prime minister)

Question 15

What is the formula for car BIK and all other notes?

& what is the max contribution allowed by the employee?

Answer 15

Car BIK= Appropriate % x List Price

▪ List price= listed price + cost of extra/accessories - Capital contribution towards purchase of car by employee (Max £5k)

▪ 12 months? If not, pro rata it (If the car was not made available by the company for certain time then this can be pro rated too)
▪ Employee contributions towards the use of the car

Question 16

What percentage is the diesel car % higher than the petrol?

With diesel car rates, what do you have to check first?

Answer 16

+ 4%

That whether it meets the RDE2 standard or not. if it does then no extra 4%

Question 17

What is the additional rule for car benefit above 95g of C02 emmission?
& what is the max amount that it can go up to

Answer 17

For each complete additional 5 grams above 95grams, An additional 1% is added to the
23% (petrol) or 27% (Diesel) up to a maximum % of 37%

Question 18

What is the definition of a pool car rule and how is the benefit calculated?

Answer 18

There is no benefit on pool cars. Cars owned by company and used by more than one employee. Personal use is incidental as it is normally not at employee’s home

Question 19

What are fuel benefit formula and conditions?

Answer 19

= (Appropriate % x £24,100)
▪ Appropriate % same as for car benefit
▪ Ignore employee partial contributions

▪ 12 months?
▪ Employee contributions in FULL

Question 20

What are van benefit amount for private use and fuel and the conditions set to it?

Answer 20

▪ Private use= £3,430
▪ Private fuel= £655

▪ If unavailable > 30 days: time apportion it

Question 21

What is the beneficial loan and conditions?

What is the government motivation for people in order to decide which value to pick?

Answer 21

This is when an employee has loan of more than £10k at any time during the tax year. There is no taxable benefit if the loan does not exceed the limit of £10k at ANY TIME during the year.

% that should’ve* been paid (ON 1) 2) x
% that has been paid ( prorata amounts paid) (x)
Benefit

• Interest that should’ve been paid is the lower of
  ▪ 1) Average method
  [(OB+CB)/2] x 2.5% Pro rated

▪ 2) Strict/Precise method

                   Balance x 2.5% =
                   Calculate on the balance actually outstanding on a daily basis
                   Pro rated

Government motivation is to make sure people spend and make the economy great so they would want you to pick the lower of so that the taxable benefit is low and you pay less tax

Question 22

What are assets provided for private use benefit formula and conditions?

and what about once it is gifted

Answer 22

Higher of ;

1) Cost to employer x Months
2) 20% of MV when first made available x Months

20% x Cost/MV when first made available

▪ If the asset is subsequently sold or given to the employee, then there will be a further benefit being the higher of:

• Market value at the date of transfer less any amount paid by employee
• Cost (Or MV when first provided) less any amounts assessed as benefits for having the use of the asset AND THE AMOUNT PAID BY THE RECEIVER AS IF THEY BOUGHT IT.

The 20% use of asset includes the amount she’s been taxed on in PREVIOUS YEARS TOO if it was given wayy before!!

Question 23

What is the limit on the appropriate % for the car formula?

Answer 23

37%

Question 24

When you are unsure of what the BIK is, what figure do you pick?

Answer 24

The cost to the employer. Common sense!!!

Question 25

Which allowable expense, if spent over the threshold is then all chargeable

Answer 25

▪ Overnight expenses of working away from home up to £5 per night in the UK and £10 per night overseas. If spent more than £5 the WHOLE amount will be BIK

Question 26

..

Answer 26

..

Question 27

What is the time limit for notifying HMRC of chargeability

Answer 27

A new source of income/gains in the tax year, are required to give notice of chargeability to HMRC within six months from the end of the year. i.e. by 5th October 2020 for 2019/20.

Question 28

What is the filing date for the tax return

Answer 28

The filing date for the tax return is 31 Jan following the end of the tax year i.e. 31 Jan 2021 for the tax year 19/20

Question 29

Explain the following exemptions

• Pension
• Overnight expenses
• Loan
• WFH expenses
• Medical treatment
• Trivial benefits

Answer 29

▪ Pension advice of up to £500
▪ Overnight expenses of working away from home up to £5 per night in the UK and £10 per night overseas. If spent more than £5 the WHOLE amount will be BIK
▪ Loans ≤ 10,000. If more, it’s potential BIK
▪ up to £4 per week or £18 per month towrads additional household costs where the employee works from home
▪ Medical treatment of up to £500 per year per employee to enable an employee to return to work.
▪ Trivial benefits which do not cost more than £50 per employee provided these benefits are not cash or a cash voucher (NB retail store vouchers are not cash vouchers so allowed. Cash vouchers can be spent in many different stores) .

3

Question 30

What is the long service award?

Answer 30

They’ve worked for at least 20 years and the award is worth less than £50 per year of service and considering you haven’t given them a long service in the last 10 years

Question 31

If a second mobile phone is given, how is this taxed?

Answer 31

▪ 2nd phone BIK (Cost x 20%!)

Denzil was provided with two mobile telephones. The telephones had each cost £250 when purchased by Vary plc in January 2019. The company paid for all of Denzil’s business and private telephone calls.
£50 (250 x 20%).

Question 32

health club membership fee for employee of £710 paid for by Company, how is this taxed

Answer 32

The benefit of the health club membership is the cost to the company of £710.

Question 33

Grace was paid £11,000 towards the cost of her removal expenses when she permanently moved to take up her new employment with Vary plc, as she did not live within a reasonable commuting distance. The £11,000 covered both her removal expenses and the legal costs of acquiring a new main residence.

how is this taxed?

Answer 33

Only £8,000 of the relocation costs is exempt, and so the taxable benefit is £3,000 (11,000 – 8,000).

Question 34

Hillary’s three year old daughter was provided with a place at Vary plc’s workplace nursery. The total cost to the company of providing this nursery place was £10,800 (240 days at £45 per day).

how is this taxed?

Answer 34

The provision of a place in a workplace nursery does not give rise to a taxable benefit.

Question 35

Ian had the use of Vary plc’s company gym which is only open to employees of the company. The cost to Vary plc of providing this benefit to Ian was £340.

how is this taxed?

Answer 35

The use of a company gym does not give rise to a taxable benefit.

Question 36

Kristin regularly works from home two days per week, and was paid an allowance of £192 (48 weeks at £4 per week) to cover the extra light and heat costs which were incurred due to this homeworking.

how is this taxed?

Answer 36

Payments for homeworking are exempt up to £4 per week, so the allowance does not result in a taxable benefit.

Question 37

Nile was given a pen valued at £45 as a 60th birthday present.

how is this taxed?

Answer 37

Trivial benefits which do not cost more than £50 per employee are not a taxable benefit provided the benefits are not cash or a cash voucher.

Question 38

Justin is employed by Steam plc. On 1 August 2019, the company provided him with a TV costing £3,600 for his personal use. Justin pays Steam plc £20 a month for the use of the TV.

What is the taxable benefit

Answer 38

The taxable benefit for 2019–20 is £320 ((3,600 x 20% x 8/12) – (20 x 8)).

Question 39

What is the formula for accrued income scheme

Answer 39

Interest received x
Less: Interst accrued prior to purchase (x)
Add: Interest accrued on Sale X

Interest accrued on sale are for the months from the previous date of payment to the sale date

Question 40

When working out the loan benefit what must you remember?

Answer 40

Remember that the should’ve paid and did pay is calculated on the amounts from the two methods (Average & strick). And if there were repayments (especially for Average method don’t forget) that split the amounts and calculate the amount that the person did end up paying!

Should've paid ( On Average Amount)
Did pay (The amount then calculate again on the balance and remembering to PRO RATE it)

Question 41

The market value of the computer when first provided to an employee for private use was £3,600 and had a market value of £2,000 when provided to John for private use. Z plc gave the computer to John on 5 April 2020 when it had a market value of £1,000.

Which amount do you use?

Answer 41

that the value of the asset when first provided to any employee is used rather than the value when provided to John. when calculating the 20% use as well as the higher of MV or Cost for when it was gifted

Question 42

When working out the accomodation benefit, what must you remember?

Answer 42

Remember that it is the higigher of annual rateable value or the rent paid AND plus additional charge if the property is owned and cost more than 75k

Question 43

When you are given a BIK question with use of asset with MV annd the amount that employerd paid, which will you pick?

Answer 43

Higher of ;

1) Cost to employer x Months
2) 20% of MV when first made available x Months