Post on 05-Apr-2018
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 1/21
Taxation 2011/2012
Income from employment
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 2/21
Tax on employment income
• Big earner for the government
• Most of us will be wage slaves
• PAYE –
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 3/21
Employed or self-employed?
• Why is it important?
• Tax paid up-front if employee
• Longer to pay if self-employed
• Higher NICs for employee
• Higher NICS for employer if employee• Fewer allowable deductions if employee
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 4/21
Employed or self-employed?
• Employees are servants, even if directors
• Contract “of service” or “for services”?
• Who bears losses when work is poor?
• Level of supervision
• Part of the structure?• The working day, holidays and substitutes
• Exclusivity
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 5/21
What gets taxed?
• Anything you get because of your job
• Salary and wages on cash basis
• Bonuses on cash basis
• Allowances on cash basis• Tips on estimated basis
• Cash benefits
• Benefits in kind - special rules – see later
• (Deposits in Monte Carlo - Rosie 47 Account ??????)• ALSO
• State and private pensions
• Job seeker’s allowance, carer’s allowance and other State
benefits
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 6/21
Employment income not taxed
• Staff canteens
• Christmas party <£150 each
• Parking space at work
• Green commuting – on yer bike!• £5 a night when away on business
• Removal expenses <£8,000
• Mobile phone (only one)
• Workplace childcare, sports or recreation facilities
• Childcare up to £55 a week paid by employer basic rate
taxpayer ( £28/£22 for higher/additional rate taxpayers)
• Job-related living accommodation, but may be taxed on
ancillary costs
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 7/21
Employment income not taxed (contd)
• Employer contributions towards costs of working at home
• Gifts to employee in a personal capacity
• Non-cash gifts not from employer but because of
employment and <£250 and not in performance of duties
• Cost of work-related training courses, and up to £15,480 a
year in full-time education
• Provision of welfare advice
• Provision of pensions advice and <£150 per employee
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 8/21
Approved mileage rates
• Employee owns car/bike and uses it on
business
• And receives a mileage allowance from
employer
• Tax-free so long as less than statutory rates
• 45p car per mile
• Excess is taxable
• If allowance paid is less than statutory rates
the deficit is an allowable ex ense
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 9/21
Allowable expenses
• Not many
• Pension contributions to approved schemes
• Professional subscriptions
• Payroll giving donations to charity
• Very limited travel expenses• Other expenses which are vital for
performance of job ( ie virtually none)
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 10/21
Benefits in kind
• These occur when the employee receives
• goods
• services
• the loan of assets
• from employer, on top of money
• and they are not on the tax-free list (see
above)
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 11/21
Types of employee
• Two types:
• “P11D employees”: Those earning at least
£8,500 including benefits in kind, and
directors irrespective of earnings
• “Lower paid employees”: those earning less
than £8,500
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 12/21
Benefits in kind
• P11D or “lower paid”?
• Benefits taxable for all employees:
• Vouchers
• Accommodation• Benefits taxable only for P11D employees:
• Accommodation ancillary costs, eg gas and electricity
• Assets loaned by employer
• Cars• Fuel
• Beneficial loans
• Private health insurance
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 13/21
Benefits taxable for all
employees• Vouchers:
• Credit cards
• Book and record tokens
• Accommodation:
• Annual value if owned by employer
• Higher of rent or annual value if rented
• If property cost> £75,000 an additional benefit of
• (Cost - 75,000) x Official Rate is added.
• MV if property acquired > 6 years ago
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 14/21
Benefits taxable only for P11D
employees
• Accommodation ancillary costs
• Assets loaned by employer
• Cars• Fuel
• Beneficial loans
• Private health insurance
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 15/21
Accommodation ancillary costs
• Costs connected with accommodation paid
for by employer are added to taxable
income, eg
• Gas and electricity
• Council tax
• Water rates
• Insurance
• For furniture see next slide
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 16/21
Assets loaned by employer
• Has to be some private use eg clothes, furniture
• Taxable amount is 20% of MV when first loaned
• Taxed for all periods asset available
• If asset is subsequently given to employee:
• Additional taxable amount = higher of
• 1) MV on sale less amount paid by employee
• OR• 2) MV when first loaned LESS amounts already taxed
LESS amount paid by employee
• If a car or bike only (1) applies
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 17/21
Cars(1)
• Has to be some private use to be taxed
• Taxable benefit =
• List price x applicable percentage
• less employee contributions
• List price = List price plus optional
accessories less capital contribution up to amaximum £5,000
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 18/21
Cars(2)
• Applicable percentage =
• < 75g/km 5%
• 76g/km – 120g/km 10%
• 120g/km – 125g/km 15%
• FOR CARS OVER 125g/km:
• 15% PLUS
» CO2 minus 125
5 rounded
• up to a maximum of 35%
• Add 3% if diesel engine (up to 35%)
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 19/21
Fuel taxable benefit
• There must be some private use
• Taxable benefit =£18,800 x car applicable percentage
• Employee contributions are not deducted
• They either cover the cost of private fuel meaning NOTAXABLE BENEFIT OR
• they do not cover the cost GIVING A FULL FUEL
BENEFIT
• David Harrowven FA 2011 examples
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 20/21
Beneficial loans
• A loan provided by employer where the interestrate is less than the Official Rate
• Taxable benefit =
• Loan x Official rate• Then interest paid by employee is deducted
• If loan varies during tax year, loan =
• Loan at start + loan at end• 2
• No taxable benefit if total loans from that
employer are less than £5,000.
7/31/2019 Lecture 2 Employment Income
http://slidepdf.com/reader/full/lecture-2-employment-income 21/21
Other benefits
• Private health insurance benefit = accrued
cost to employer
• Vans with private use the benefit = £3,000
• Private fuel for van additional £550