PTAX Personal Taxation Income From Property (Rental Income)

Objectives To be able to: Identify allowable expenses Calculate taxable property income Treat property losses correctly Make suitable elections for Rent-a-Room relief Calculate taxable income from furnished holiday lets Prepare tax return supplements for Employment Income Property Income 2

Income & Expense Receipts or accruals basis?

Expenses The general rules for expenditure to be allowable: 1. Revenue, not capital. ie. Not improvements (central heating) 2. Wholly and exclusively for purpose of lettings Questions P1, P2

Allowable Expenses Irrecoverable rent (NOT deducted from income) Expenditure before a property is rented out But not renovation Expenditure in void periods Questions P3, P4

Wear & Tear Allowance Furnished lettings 10% (rent – irrecoverable rent - rates - council tax)

Non-allowable Expense DEPRECIATION Questions P5, P6

Property loss Offset against: 1. Other properties in the same tax year 2. Future property income Of same type Questions P7, P8, P9

Rent a Room and Other Rules

Rent a Room Relief £4,250 /year Example If you rent out part of your own home for £5,000 a year, taxable income is: £5,000 less expenses OR £5,000 less £4,250 Rent a Room Relief

Rent a Room Relief: Question If you rent out part of your own home for £6,000 a year, incurring expenses of £3,200, what is your taxable income? Questions RR1, RR2

Holiday Lets Different rules: Capital allowances (furniture, equipment) Pensionable

Holiday Lets View to making a profit Max 31 continuous days per tenant Actually let for 105 days Available for twice this (210 days) Questions RR1, RR2

Question What records might you keep relating to property income?

HOMEWORK P10 Read chapter 2 Tutorial book questions, ch 2, except

PTAX Personal Taxation Employment (Salaries, Bonuses, Pensions) FA2015

Objectives To be able to: Decide whether a taxpayer is employed or self-employed Decide when employment income is taxable Assess the taxable amount on a variety of benefits in kind Identify expenses which are allowable in calculating taxable income Explain record-keeping requirements 17

Income received + benefits in kind - allowable deductions Employment Income

Taxation of Employment Income Is employment income taxed on a receipts or accrual basis? 19

Indicators of Self-Employment (Contract for Services) How do you decide if a taxpayer is self- employed? Questions EMP1, EMP2, EMP3 20

Taxable Benefits 21

General Rule (P11D employees) If an employer provides an employee with a benefit, how do you determine the taxable amount? 22

Employee contribution Is the tax affected if an employee contributes to the cost of a taxable benefit? 23

List price – employee contribution (max £5,000) x scale charge % - employee contribution to running cost Company Car Benefit

Below 95g/km: see data sheet 95g/km: 14% +1% per 5g/km Diesel: +3% Max 37% Scale Charge %

£22,100 x scale charge % Ignore part contribution Fuel Benefit

Car & fuel benefits are time- apportioned if the car is not available for the whole tax year Timing

Pool Car Not a benefit if: Private use is incidental Used by several employees Not normally kept at employee’s home 28

Company Van No benefit if insignificant private use £3,150 for private use £594 for fuel for private use Questions TB1, TB2, TB3, TB4 29

Beneficial Loan Loan x (Official interest – Actual interest) No benefit if total loans <£10,000 If loan written off: Benefit = Amount of loan Questions TB5, TB6 30

Beneficial Loan If the loan changes during the year, use: Opening Balance + Closing Balance 2 Questions TB7, TB8 31

Accomodation Annual value (or rent paid by employer if higher) +(Cost - £75,000) x Official interest + Cleaning etc + Assets x 20% Time apportioned 32

Accomodation Exempt for Representative occupier (Caretaker) Customary (Vicar) Security In these cases: Running expenses limited to 10% of earnings Questions TB9, TB10 33

Gift/Loan of Asset Gift Benefit = Market value Loan Benefit = 20% of value when first provided 34

Gift of asset previously loaned Higher of: market value when transferred market value when first provided less previous taxable benefit Less employee contribution Questions TB11, TB12 35

Tax-free benefits 36

Tax-free benefits Money: First £30,000 redundancy (not strictly a benefit) £8,000 relocation £5,000 suggestion scheme, long service award (20yrs, £50/yr) £5 per night incidental expenses (£10 overseas) £4/week for work at home Goodwill gifts <£250, entertainment 37

Tax-free benefits employers pension contribution one mobile phone + calls Childcare: workplace creche £55/28/25 approved childcare Staff canteen Staff entertainments (£150pa per person, events above this disallowed) 38

Tax-free benefits Transport: use of bicycle company bus workplace parking Other: sports facilities counselling eye checks certain state benefits 39

Wholly, exclusively, necessarily in performance of duties Allowable deductions

Professional subscriptions Approved Mileage Allowance Payments Reimbursed subsistence and customer entertaining P60 pay shown after: Pension contributions Payroll giving 41

Home to normal workplace travel Not Allowable Questions AD1, AD2

Allowable deductions: questions In which of the following cases will the expenses described be allowable against the employee’s income for tax purposes? a) A bank manager voluntarily pays an annual subscription to a London club. He uses the club only for the purpose of meeting the bank’s clients. 43

Allowable deductions: questions b) A workman is required to provide his own tools and protective clothing. c) A clerk pays to attend a college course in the evenings, so as to gain qualifications and improve her career prospects. d) The finance director of a company pays an annual subscription to the Institute of Chartered Accountants. 44

Allowable deductions: questions e) A college lecturer teaches at the main college building and then drives to one of the college’s annexes to take his next class. He pays his own travel costs. f) A barrister living and practising in London is appointed Recorder of Portsmouth. He pays his own travel costs between London and Portsmouth. 45

Dispensation What is a Dispensation? 46

Records to keep P60 P11D P45 Receipts Tax return Questions TB13, AD3 47

HOMEWORK TB14 Read chapter 4 Tutorial book questions, 4.1, 4.6, 4.8, 4.7, 4.3, 4.2,