Flashcards in Chapter 3 - Employment Income Deck (16):
What is the difference between employment and self employment?
Employment involves a contract of service (receipts taxable as earnings) whereas self employment (profits taxable as trading income) involves a contract for services. The distinction is based on looking at a number of factors. NIC status is also affected.
What factors may be important?
Degree of control exercised over the person doing the work
Worker must accept further work
Person offered work provide further work
Worker entitled to benefits or not
Worker hires own helpers or not
Degree of financial risk taken
Degree of responsibility for investment and management
Can worker choose when they work
Wording used in agreements
Worker provides own equipment
What cases are relevant to employment and self employment?
Edwards v Clinch 1981 - No ongoing office which could be vacated by one person and held by another so fees were from self employment
Carmichael and Anor v National Power Plc 1999 - casual guides
When are general earnings taxed?
General earnings in year of receipt
What is the general earnings consisting of money if person is a director?
Time payment made
Time when amount is credited to company accounting records
End of company's period of account
Time the amount is determined
What are net taxable earnings?
Total taxable earnings less total allowable deductions. Deductions cannot create a loss can only reduce tax to nil. If more than one employment in tax year then separate calculations required for each employment
What is relief limited to?
Qualifying travel expenses
Other expenses obliged to incur and pay as holder of the employment which are incurred wholly, exclusively and necessarily in performance of duties of employment
When are travel costs qualifying for tax relief?
When employee is obliged to incur and pay in travelling in performance of their duties or travelling to or from a place which they have to attend in the performance of duties. Does not include normal commuting costs.
Site based employees and entities to relief of all travel expenses as no fixed workplace.
Travel, accommodation and subsistence when working at temporary workplace or on secondment for up to 24 months.
What happens where secondment exceeds 24 months?
Relief ceases from date become aware that secondment will last more than 24 months.
When are other expenses eligible for relief?
when incurred wholly, exclusively and necessarily in performance of duties. No private benefit should result. In practice small amounts of private benefit will be ignored or apportioned.
Cost of clothes for work is only deductible in certain trades.
What are cases relevant to other expenses?
Lucas v Cattel 1972 - business calls on private line deductible. no part of line rental is deductible though
Can home workers claim a deduction?
Employees required to work at home can claim for additional costs of working from home. Employers can pay up to £4 per week without need for supporting evidence.
What expenditures are specifically deductible from tax?
Contributions to occupational pension schemes
Subscriptions to professional bodies
Payment for certain liabilities arising from employment and for insurance against them (only where director or employee incurs liability, not if paid for by employer)
What is the statutory approved mileage allowance?
Payment up to statutory limit are tax free, any excess is taxable. A deduction can be claimed if payment is lower.
A single approved mileage allowance for business journeys in an employees own vehicle applies to all cars and vans. There is no income tax on payment up to allowance. Employers can pay higher rates but will be taxed on excess.
Allowances 45p per mile on first 10,000 miles and 25p on any further miles
For motorcycles 24 per mile and bikes 20p per mile.
Are there any allowances for extra passengers?
Employers can make income tax and NIC free payments of 5p per mile for each fellow employee making the same business trip who is carried as a passenger. The employee cannot claim this relief.