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

Indicators of Self-Employment (Contract for Services) How do you decide if a taxpayer is self-employed?

Income received + benefits in kind - allowable deductions Employment Income Income received + benefits in kind - allowable deductions

Taxation of Employment Income Is employment income taxed on a receipts or accrual basis? Questions EMP1, EMP2, EMP3

Taxable Benefits

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

Employee contribution Is the tax affected if an employee contributes to the cost of a taxable benefit? Reduces benefit (except fuel)

Company Car Benefit List price – employee contribution x scale charge % - employee contribution to running cost

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

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

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

Pool Car When is this not a taxable benefit?

Company Van What is the taxable benefit? Questions TB1, TB2, TB3, TB4

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

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

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

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

Gift/Loan of Asset What is the befit in kind for: Gift Loan

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

Tax-free benefits

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

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)

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

Wholly, exclusively, necessarily in performance of duties Allowable deductions Wholly, exclusively, necessarily in performance of duties

Allowable deductions What is allowable?

Home to normal workplace travel Not Allowable Home to normal workplace travel 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. No

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.

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.

Dispensation What is a Dispensation?

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

HOMEWORK Read chapter 4 Tutorial book questions, 4.2, 4.3, 4.1, 4.5, 4.6, 4.7, 4.8