Income from employment Flashcards
Employees v Self-employed
Employees:
Have a contract of service with employer
Receive taxable earnings
Pay tax under PAYE system
Self-employed:
Enter into a contract for services
Pay tax on profits for the year
Define taxable earnings
Anything that is a reward of employment = salary, waged, bonus, tips
Payment vs. Receivable
Earnings are taxable when they become receivable no matter when it is paid
Allowable employment income deduction
Expenses can be deducted from employment income if:
Employee is obliged to pay expense
If the expense is wholly, exclusively and necessary for employment
Allowed - business calls (not line), cost of working from home, protective clothing
Disallowed - smart work clothes, exam fees
Pension contributions
Professional subscriptions
Employment relates insurance
Pension contributions - deduct employee contributions to an occupational pension scheme from gross salary
Professional subscriptions - deductible if relevant to duties
Employment relates insurance - deductible if paid by employee
Cars - overview
Employees are taxed on: The list price, additional extras provided with the car and any further extras after above £100.
Ignore any discount
Capital contributions of up to £5k by the employee to reduce list price
Cars - % tax
% tax depends on cars CO2 contributions (see table in exam)
For every 5g/kg over 95g add 1% (round down to the nearest 5g/kg)
If diesel add a further 4% (if it doesn’t meet RDE2)
Max % = 37%
Fuel
If company provides fuel for private use its the car % times a base figure of £24,100 (given in exam)
Accommodation
A benefit arises if an employee is given accommodation unless it is job related (e.g. caretakers).
If the employer owns the property the employee is taxed on the annual value (rent if it was charged to a 3rd party)
If the employer rents the property the taxable benefit is the greater of the rent paid by the employer or the annual value
Accommodation additional charge
If the employer owns the property
(Cost - £75k) x rate of interest (in question)
Cost = total cost of acquiring and improving the property prior to the tax year. Ignore improvements in current year. Improvements are not repairs. Use market value if property was bought >6 years ago.
Loans taxable benefit - interest loan
Taxable benefit = (loan x official rate if interest) - interest paid
Loans taxable benefit - interest free
Average method = ((opening loan + closing loan) / 2) x interest rate
Strict method = loan values at each payment x time apportionment (i.e. 6/12 if for first 6 months)x interest rates
Payment of PAYE
Payment to HMRC is due by 22nd of the month following the pay day.
Can otherwise pay quarterly on 22 July, Oct, Jan and April of per month the liability due is 1,500 or less
PAYE information
Employers must submit income tax and NIC info to HMRC when or before the employees are paid each month and a total annual one for the year
PAYE codes
If allowances less deductions is:
positive remove the final digit and replace with ‘L’
if negative replace the first number with a K and decrease by 1.
