Lecture 2 Employment Income

7/31/2019 Lecture 2 Employment Income

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Taxation 2011/2012

Income from employment



Tax on employment income

• Big earner for the government

• Most of us will be wage slaves

• PAYE –



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



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



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



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



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



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



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)



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)



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



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



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



Benefits taxable only for P11D

employees

• Accommodation ancillary costs

• Assets loaned by employer

• Cars• Fuel

• Beneficial loans

• Private health insurance



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



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



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



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%)



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



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.



Other benefits

• Private health insurance benefit = accrued

cost to employer

• Vans with private use the benefit = £3,000

• Private fuel for van additional £550

Documents

Lecture 2 Employment Income