2:3 Employment Income Flashcards Preview

ACF306 Taxation > 2:3 Employment Income > Flashcards

Flashcards in 2:3 Employment Income Deck (15)
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Why is the distinction between Employment and self-employment important?

Makes a big difference in amount of tax payable

Tax payers prefer self employment as deductions for expenses usually more generous & NIC different (cheaper)


How to tell if you're are employed or self-employed?

Contract of Service = Employment
Contract for services = Self Employment


Other factors that affect if you're self employed or employed? (8)

Degree of control exercised
Whether they must accept further work
Whether the other party must offer further work
Whether they provide their own equipment
"" they hire their own helpers
What degree of financial risk they take on
Whether they can profit from sound management
"" they can work when they choose


How does the PAYE scheme work?

The employer deducts an amount of tax from your income on a regular basis to reflect annual tax liability of the employee
A P60 is given each year to employees to explain tax deducted on their behalf


When are deductions allowable?

When they are wholly, exclusively and necessarily in performance of the duties of employment


Summary of tax allowances on mileage (3)

Employees get a tax free allowance when they use their own car for employer business

cars - 45p up to 10k miles, 25p on excess miles

When amounts paid to the employee are below limits, the shortfall can be claimed as deductible expense or vice verse


What are the tax allowances on payments on termination of employment?

Exempt payments on bodily harm, lump sum from approved pension schemes, state redundancy payments
Contractual entitlements are taxable in full
Termination payments are partly exempt - first £30,000


What are some exempt benefits?

In-house sports facilities
Relocation costs up to £8,000
Trivial benefits (tax free gift) up to £300 per employee per year


How is taxable benefit calculated?

On lower paid employees the benefit is taxed on a cash equivalent basis

On higher paid employees the benefit is taxed at the cost of provision.


What are the benefits taxable on all employees? (5)

Long service awards
Work place nurseries - no tax benefit if run by employer


How is job related accommodation taxed?

Taxed on related expenses if paid by employer e.g. heating
Use of furniture @20% of cost per year

The benefit is restricted to 10% of net emoluments (salary)


How is non-job related accommodation taxed?

Taxed on the same as the job related one
Annual value
and Additional expensive property charge


Taxable benefits on a company car

A company car that is used by an employee is considered a benefit even if its mostly used for business purposes.

the benefit is based on the emissions levels x the list price when new (- contributions)

Fuel benefit is a flat rate of £24,100 x CO^2 %
No deduction for contribution to private fuel unless fully reimbursed


Other benefits provided

Scholarships - if given to family members the employee is taxed on cost
Use of assets - cost x 20%
Loans - taxed on difference between official IR rate (3%) and rate actually charged
- No tax under £10,000
- Everything taxable if over £10,000


Rules on pensions

Annual allowance of up to £40,000
Lifetime allowance of £1,000,000