Employment Income Flashcards
(17 cards)
What taxable benefits in kind are subject to special valuation rules?
- Vouchers
- Living Accommodation
- Expenses connected with living accommodation
- Cars and fuel provided for private use
- Vans provided for private use
- Assets made available for private use
How are vouchers taxed?
Employees are taxable on the provision of:
- Cash vouchers - taxable amount is the sum of money for which the voucher is capable of being exchanged.
- Credit tokens (e.g. a credit card) used to obtain money, goods or services - taxable amount is the cost to the employer of providing the benefit, less any amount paid by the employee.
- Vouchers exchangeable for goods & services (e.g. book tokens) - taxable amount is cost to employer of providing the benefit, less any amount paid by the employee.
How is living accommodation taxed?
- If an employer owns a property that is provided to an employee for use as living accommodation, the basic taxable benefit is equal to the “annual value” of the property.
- If employer rents the property (rather than own) the taxable benefit is the higher of: the annual value of the property or the rent paid by the employer.
- The taxable benefit is reduced by any contribution made by the employee.
What are the rules surrounding expensive living accommodation?
- There’s an increase in taxable benefit if the property costs more than £75,000.
- Cost of property = purchase price + cost of improvements made before start of tax year - any capital contribution made by employee.
- The increase in taxable benefit is calculated by applying the “official rate of interest” to the amount by which the cost of accommodation exceeds £75,000.
- If the house has been owned by the employer for more than 6 years before occupation by employee, market value at occupation is used instead of cost.
What are the rules surrounding job-related accommodation?
An employee who is provided with living accommodation is also taxed on the cost to the employer of providing any “ancillary services” such as heating, lighting, council tax, cleaning, repairs, decorating etc.
How are cars provided for private use taxed?
- The taxable benefit is based upon the list price of the car when new (reduced by any capital contribution made by the employee up to a maximum of £5,000) plus cost of accessories.
- Taxable benefit is calculated by applying a percentage to the car’s list price.
- The applicable percentage depends upon the car’s emission rating (CO2) - rounded down to the nearest 5g/km if over 75g/km.
What are the applicable percentages for car emission ratings?
- 0g/km: 2%
- 1 - 50g/km (depending on electric range): 2 - 14%
- 51g/km to 54g/km: 15%
- 55g/km to 59g/km: 16%
- 60g/km to 64g/km: 17%
- 65g/km to 69g/km: 18%
- 70g/km to 74g/km: 19%
- 75g/km: 20%
- Each additional 5g/km: 1% increase
How much percentage is added for diesel cars?
4%.
What is the maximum percentage that can be applied in all cases?
37%.
When is the benefit reduced proportionately?
If the car is not made available for the whole tax year or is off the road for 30+ consecutive days.
What reduces the taxable benefit?
Any amount paid by the employee towards running costs (apart from fuel) reduces the taxable benefit.
How is fuel taxed?
- Calculated using the same percentage as taxable car benefit.
- Percentage is applied to a fixed amount for the tax year - £25,300.
- If employee pays for all private fuel there is no taxable benefit but the benefit is not reduced by any partial contribution.
How are vans taxed?
- Fixed taxable benefit of £3,600 (£0 if zero emissions van).
- Where any private fuel is provided, additional taxable benefit of £688 - unless cost of fuel is fully reimbursed.
- These charges are reduced proportionately if van is not provided for whole of the tax year.
How are assets loaned to employees for private use taxed?
- Employee is taxed annually on the higher of (a) 20% of market value of asset when first provided or (b) any rent or hire charge paid by employer.
- This is scaled down if asset is not available for whole of tax year to employee.
- If asset is subsequently given or sold to employee, they are taxed on the higher of (a) market value of asset when first loaned to employee, less taxable benefits arising during the period of loan and less any amount paid for the asset by the employee or (b) market value of asset at date of transfer, less any amount paid by the employee.
What employment benefits are exempt from taxation?
- Trivial benefits (not cash) costing no more than £50.
- Free or subsidised meals in a staff canteen.
- Annual staff parties (£150 max per head per tax year).
- Provision of a parking space at or near work.
- “Green commuting” benefits.
- Additional household costs incurred by homeworkers - £6 per week without need for evidence.
- Approved mileage allowances.
- Removal expenses up to £8,000.
- One mobile telephone for both business and private use.
- Workplace childcare, sports or recreation facilities.
- Employer’s contributions to a registered pension scheme.
- Entertainment provided by a third party.
- Staff suggestion scheme payments (£5,000 max).
- Work-related training courses.
- Personal incidental expenses for staying away overnight (£5 in UK, £10 overseas).
- Non-cash long service awards (minimum 20 years; maximum £50 per year).
- Eye tests and medical check ups.
What is not exempt from tax in relation to trivial benefits?
- Benefits in kind costing more than £50 are subject to income tax and NICs.
- Cash or cash vouchers and benefit must not be provided in recognition of particular services performed by the employee.
- Cannot be used to exempt part of a benefit costing over £50 (e.g. a benefit in kind costing £70 cannot be reduced to £20).
- Exemption is capped at £300 per tax year for directors of a close company.
How should you approach benefit questions?
- Is the benefit exempt?
- If not - calculate the value of the benefit for the whole tax year.
- Time apportion the benefit if not provided for the entire tax year.
- Deduct any employee contributions (except for private fuel - no deduction for part reimbursement).
