Employment Income Flashcards
(106 cards)
1
Q
Employment income definition
A
Money (or money’s worth)
Arising from employment
2
Q
Employment income =
A
Salary
+ bonus
+ taxable benefits
3
Q
Basis of employment income taxation
A
Receipts basis
4
Q
EI: Salary on receipts basis
A
Tax the gross on every payday
(In tax year)
5
Q
EI: Bonus on receipts basis: Deemed to be received on:
A
The earlier of:
1. Payment date
2. Date they become entitled to payment
6
Q
EI: Taxable benefits on receipts basis
A
Benefits calculations
If benefit only provided for part of year then apportion to nearest month
7
Q
EI: Taxation on employer benefit there is no specific rule for
A
Marginal cost to employer
Minus any contributions made by employee
8
Q
ET: Tax treatment of vouchers
A
Three treatments:
- Non-cash voucher
- Cash voucher
- Credit token
9
Q
Non-cash voucher
A
Voucher or card
Exchangeable for goods or services
E.g. book token
10
Q
Cash voucher
A
Voucher or card
Exchangeable for cash
11
Q
Credit token
A
Usually credit card
Can be used to obtain:
Money
Goods
Services
12
Q
ET treatment of: Non-cash voucher
A
Cost to employer
Less any amount paid by employee
13
Q
ET treatment of: Cash voucher
A
Amount for which voucher can be exchanged
14
Q
ET treatment of: Credit token
A
Cost to employer
Less any cost paid by employee
15
Q
Which vouchers are exempt from ET?
A
Vouchers for approved childcare
16
Q
ET treatment of: Trivial benefits
A
Exempt
17
Q
(ET) Trivial benefits exception
A
Cap of £300
When provided to certain directors
18
Q
Trivial benefit conditions:
A
All of:
- Cost less than £50
- Not cash or cash voucher
- Not provided in recognition of services
19
Q
What happens if a benefit fails trivial benefit conditions?
A
Taxed normal way
20
Q
ET benefits exempt from income tax
(Needed for exam)
A
- Free/subsidised on-site canteen
(Must be available to all employees) - Sport facilities
Available to employees
But not general public - Workplace nurseries/childcare
- Vouchers approved for childcare
- Health screening and medical check up
Once per year - Glasses and eye tests
For employees who use VDUs - Recommended medical treatment to help employee return to work
Up to £500 - Use of bicycles
And cycling safety equipment
If available to all employees - Work busses
Subsidies to use work busses
21
Q
Tax exemption of approved childcare vouchers conditions: Two conditions
A
- In scheme before 6 Apr 2011
- In scheme from 6 Apr 2011
22
Q
Tax exemption of approved childcare vouchers conditions: Joined before
A
£55 p/w
23
Q
Tax exemption of approved childcare vouchers conditions: Joined after
A
£55 p/w basic rate
£28 p/w higher rate
£25 p/w additional rate
From 6 Apr 2013
(Until 4 Oct 2018)
24
Q
How is tax rate worked out for calculating childcare vouchers?
A
Basic earnings assessment
Only considers certain employment income elements
No other sources
25
Provision for job-related accommodation conditions
Must be job related:
Necessary for performance of duties
Customary to be provided
Provided for security
26
Job-related accommodation example: Necessary for performance of duties
Caretaker
27
Job-related accommodation example: Customary to be provided
Police officers
28
Job-related accommodation example: Provided for security
Barracks
29
Conditions for job-related accommodation provision: Directors
1. Own no more than 5% shares
2. Full time working director
(Unless charity/non-profit making)
30
Non job-related living accommodation rented by employer provision conditions: Depends on
Owning or renting
31
Non job-related living accommodation rented by employer: What is the rule?
Benefit time apportioned for part availability
Any rent paid deducted from value of benefit
Higher of:
1. Annual/rateable value
2. Rent paid by employer
32
Non job-related living accommodation rented by employer provision conditions: Owning
Benefit time apportioned for part availability
Any rent paid deducted from value of benefit
1. Basic benefit = Rateable value
2. Additional benefit if:
House cost over 75k
33
Non job-related living accommodation rented by employer provision conditions: Owning: Additional benefit calculation
(Cost - 75k)
X
Official interest rate at start of tax year
34
Non job-related living accommodation: Owning: Cost definition
Original value when employer purchased the property
Plus capital improvements from cost date to start of tax year
But exceptions
35
Non job-related living accommodation rented by employer provision conditions: Owning: Cost: Exeption
If employer owned property for more than 6y before employee moved in
Then cost =
Market value
At date employee moved in
36
Living expenses for accommodation provision: Examples
Heating
Lighting
Cleaning
Repairs
Decoration
37
Living expenses for accommodation provision: Benefit
Cost to employer
Minus employee contribution
38
Employment tax provision: Cars provided for private use: Single car benefit: Covers what?
Running costs
Including:
Insurance
Maintenance
Road tax
Not fuel
39
Employment tax provision: Cars provided for private use: Single car benefit: Calculation
Manufacturer’s list price
X
CO2 emissions percentage
(Minus
Employee contribution)
40
Employment tax provision: Cars provided for private use: Genuine pool cars
None
41
Employment tax provision: Cars provided for private use: Single car benefit: Manufacturer’s list price calculation
Price
Plus optional extras
Minus employee capital contribution
Up to 5k
42
Employment tax provision: Cars provided for private use: Single car benefit: CO2 emission calculation: Zero emission cars
1%
43
Employment tax provision: Cars provided for private use: Single car benefit: CO2 emissions calculation
% from tax table
Round down to nearest 5g/km
Add 1%
For each complete 5g/km
Up to 75g/km
To a maximum of 37%
(Petrol and diesel)
44
Battery range aka
Electric range
45
Employment tax provision: Private fuel benefit
24,600
X
CO2 emissions %
Time apportioned if fuel not available all year
(Yes is a flat amount)
46
Employment tax provision: Private fuel benefit: Employee contribution deduction
None
Unless
If employee pays all fuel
Then no benefit
47
Employment tax provision: Van scale charge
£3,500
On private use of employer’s van
Time apportioned for part availability
Less employee contribution
48
Employment tax provision: Van scale charge: Zero CO2 benefit
None
49
Employment tax provision: Van scale charge: Used for travel between home and work + other private use is insignificant
No benefit
50
Taxable benefit for fuel provided for private use in company vans (TT)
£669 (TT)
Time apportioned for part availability
51
Taxable benefit for fuel provided for private use in company vans: Reduction for employee contributions to fuel costs
None
52
Employment tax allowance: Assets lent for private use (other than car/van): Example
Furniture
In living accommodation
Provided by employer
53
Employment tax allowance: Assets lent for private use (other than car/van): Depends on
Owning or renting the asset
54
Employment tax allowance: Assets lent for private use (other than car/van): Owning: Calculation
Market value
When first provided for private use
X
20%
Annual value
Time apportion for part availability
Less employee contribution
55
Employment tax allowance: Assets lent for private use (other than car/van): Renting
Higher of:
1. Annual value
2. Rent paid by employer
Time apportion for part availability
Less employee contribution
56
Employment tax allowance: Assets lent for private use (other than car/van): Private use not significant
No benefit
57
Employment tax allowance: Assets lent for private use (other than car/van): Private use not significant: Example
Work laptop for private email
58
Employment tax allowance: Assets lent for private use (other than car/van): Exemptions
Mobile phones
Bicycles
59
Real time information (RTI)
PAYE
Employer must submit details of pay and deductions every time they pay an employee with software.
60
When must PAYE info be submitted
On
Or before
The day the employee is paid
61
How is PAYE submitted
Using a FPS
62
FPS
Full payment submission
63
EPS
Employer Payment Summary
64
When may an EPS be required?
1. Statutory:
Maternity
Paternity
Adoption
Payments
2. Employment allowance
65
Employer processing benefits e.g. cars and medical insurance personally through the payroll
Voluntary payrolling
66
Voluntary payrolling process
Employer reports value of benefits via RTI system
Treats cash equivalent of benefit like salary
So relevant tax is deducted under PAYE
67
Only PTX benefit that cannot be processed through payroll
Employer provided living accommodation
68
Can an employer choose which benefits to payroll?
Yes
E.g. payroll company vat benefits but not medical insurance
69
Form completed by employer for each employee at the end of each tax year
P60
70
P60 details
Gross pay
Tax deducted
Employer and employee NIC
71
P60 deadline
31 May after end of tax year
72
Form providing HMRC with details of the benefits provided to each employee during the tax year
P11D
73
P11D deadline
6 July
Following end of tax year
74
People given P11D
HMRC
Employee
(Both same deadline)
75
Is a P11D required for benefits that are payrolled?
No
But employer must submit P11D(b)
76
P11D(b)
Shows cash equivalents payrolled these benefits
77
P45
Four part form
Used when employee leaves
78
P45 sections
1. Summary of taxeable pay
2. Tax
3. NIC deducted
4. Employers NI contributions
Up to date of leaving
79
P45 information submitted to HMRC
None
80
How is employee leaving communicated to HMRC
Leaving date included in FPS for period in which final payment is made
81
Monthly income tax and NIC payments (by employer) dates: Due date (both PAYE and NIC)
14 days
After month ends
So 19th
(Because tax month 6th-5th)
82
Monthly income tax and NIC payments (by employer) dates: Electronic deadline extension
22nd
83
How must employers with more than 250 employees make monthly PAYE payments?
Electronically
84
No. employees for electronic PAYE payment requirement
250
85
How can employers with average monthly PAYEs and NIC no more than £1,500 total pay?
Quarterly
86
Quarterly ET payment requirement that C must hit
£1,500 total
PAYE + NIC
Average monthly
87
What can HMRC do where ET payment is seriously at risk?
Require SECURITY
E.g. cash deposit
Can be appealed:
Requirement to
Amount
88
ET payment seriously at risk examples
Deliberately not paid
Large debts
Not responded
89
Failure to provide ET security penalty
Fine
Up to 5k
(Criminal offence)
90
Penalty regime for errors in FPS submissions under RTI
The common penalty regime for errors in returns
91
Can late payment penalties be suspended?
Yes
If taxpayer agrees time to pay
And doesn’t abuse arrangement
92
The 2 PAYE tax code forms
1. P2
2. P9(T)
93
Form P2 sent to:
Employee
94
Form P2 gives detail of
How PAYE code has been calculated
95
Form P9(T) sent to
Employer
96
Form P9(T) contains
PAYE code only
97
What spreads the employees allowance a cross the tax year?
Employer’s accounting software
98
Calculating PAYE code process: Step 1
1. Net allowances and deductions
99
Calculating PAYE code process: Allowances
1. PA
2. Transfer of PA from partner
3. Overpaid tax adjustment
100
Calculating PAYE code process: Deductions
1. Taxable benefits
2. Transfer of PA to partner
3. Underpaid tax adjustment
101
Calculating PAYE code process: Step 2
Allowances > deductions
1. Take net figure
2. Remove last digit
3. Add L
102
L PAYE code
Entitled to basic personal allowance
(Letter codes provided)
103
Calculating PAYE code process: Step 2
Deductions > allowances
1. Take net
2. Remove last digit
3. Deduct 1
4. Add K to start
104
Calculating PAYE code process: What else can be included in underpaid tax deduction
Income tax from estimated savings & dividend income
In current year
Up to 3k
105
Which tax rate to use when deducting the adjustment for underpaid tax?
Gross up
Using the individuals:
Estimated
Marginal
Rate of tax
106
Marginal rate of tax definition
Highest
