Week 2 - Employment Income Flashcards
How do we distinguish between a person who is employed and a person who is self employed?
Holidays and sickness
Work performance
Is income taxed when received or earned?
Received
What employment income is taxed?
Wages and salaries
Bonuses
Expense allowances
Pensions
Benefits
What employment income is NOT taxed? (10 examples)
Free meals in canteen
Staff parties
Parking space
“Green commuting” benefits
Mileage allowances
Personal gifts
Non-cash awards
Phone for business and private use
Workplace childcare, sports facilities
Employer’s contributions to pension scheme
What are the HMRC Approved Mileage Allowance Payment (AMAP) rates for cars and vans?
First 10,000 miles: 45p per mile
Each mile over 10,000 per year: 25p per mile
What are a few allowable employment expenses?
Contributions to a pension scheme
Subscriptions to relevant professional bodies
Payroll giving scheme donations
Travel and maintenance expenses
What are a few disallowable employment expenses?
- The costs of an employees travel between home and work
- Entertaining expenses
When are employment payments terminated and exempt from tax?
- Death of employee
- Injury or disability
- Lump sum payments made under registered pension schemes
What are the other ‘employment income’ in the form of goods?
- Living accommodation
- Assets loaned to employee for private use
- Cars and fuel provided for private use
- Beneficial loans
How is the taxable benefit calculated when an employer provides living accommodation to an employee? For both employer-owned and employer-rented properties
Employer-owned: The taxable benefit is equal to the annual value of the property
Employer-rented: The taxable benefit is the higher of 1) the annual value of the property or 2) the rent paid by employer
In what case is there an increase in the taxable benefit of the property?
If it cost the employer more than £75,000
What is the formula for cost of a property?
Its purchase price + the cost of any improvements made before the start of tax year - capital contribution made by employee
How is the increase in taxable benefit calculated?
Cost (e.g £75,000) x official rate of interest
When an employee is provided with job-related accommodation, how is the taxable benefit for ancillary services calculated?
It is capped at 10% of the employee’s net earnings
What percentage of the market value of an asset is an employee taxed annually?
20% , scaled down if not used for the whole tax year
If an asset is given to an employee, they are taxed on the higher of…
- The market value of the asset when first loaned to the employee - the taxable benefits rising during the period of the loan - any amount paid for the asset by the employee
- the market value of the asset at date of transfer - any amount paid for the asset by the employee
How is taxable benefit for an employee’s private use of a company-provided motor car calculated?
- The manufacturer’s list price when new - capital contribution made by employee up to a maximum of £5000
- Percentage is based on the car’s CO2 emissions and percentages:
Carbon dioxide emissions
Applicable percentage
Zero emission 2%
51g/km to 54g/km 15%
55g/km to 59g/km 16%
60g/km to 64g/km 17%
65g/km to 69g/km 18%
70g/km to 74g/km 19%
75g/km 20%
Each additional 5g/km 1% increase
What is the percentage supplement for diesel cars?
4% (unless it meets RDE2 standard)
What is the maximum taxable benefit in all cases in terms of cars provided? (Hint: percentage)
37%
How is taxable benefit calculated when an employer provides fuel to an employee?
The percentage used for taxable car benefit x £27,800
What is a beneficial loan?
A loan which is granted by an employer to en employee either interest free or at a rate of interest below the official rate
How is the taxable benefit for beneficial loans calculated? And at what maximum amount would there be no taxable benefit arising?
Official rate of interest - interest payable by employee
No taxable benefit - £10,000
What are the two methods of calculating interest for the year at the official rate?
- Normal method: Amount of loan at start and end of tax year is averaged and multiplied by the average official rate for the year
- Alternative method: Interest at the official rate is calculated precisely on the day-to-day outstanding balance
When an accommodation is purchased by an employer, what is the value of the property in which an additional benefit is applied?
£75,000
