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Taxation 2011/2012

Income from employment

Tax on employment income


Big earner for the government Most of us will be wage slaves PAYE

Employed or self-employed?
Why is it important? Tax paid up-front if employee Longer to pay if self-employed Higher NICs for employee Higher NICS for employer if employee Fewer allowable deductions if employee

Employed or self-employed?
Employees are servants, even if directors Contract of service or for services? Who bears losses when work is poor? Level of supervision Part of the structure? The working day, holidays and substitutes Exclusivity

What gets taxed?


Anything you get because of your job Salary and wages on cash basis Bonuses on cash basis Allowances on cash basis Tips on estimated basis Cash benefits Benefits in kind - special rules see later (Deposits in Monte Carlo - Rosie 47 Account ??????) ALSO State and private pensions Job seekers allowance, carers allowance and other State benefits

Employment income not taxed


Staff canteens Christmas party <150 each Parking space at work Green commuting on yer bike! 5 a night when away on business Removal expenses <8,000 Mobile phone (only one) Workplace childcare, sports or recreation facilities Childcare up to 55 a week paid by employer basic rate taxpayer ( 28/22 for higher/additional rate taxpayers) Job-related living accommodation, but may be taxed on ancillary costs

Employment income not taxed (contd)


Employer contributions towards costs of working at home Gifts to employee in a personal capacity Non-cash gifts not from employer but because of employment and <250 and not in performance of duties Cost of work-related training courses, and up to 15,480 a year in full-time education Provision of welfare advice Provision of pensions advice and <150 per employee

Approved mileage rates


Employee owns car/bike and uses it on business And receives a mileage allowance from employer Tax-free so long as less than statutory rates 45p car per mile Excess is taxable If allowance paid is less than statutory rates the deficit is an allowable expense

Allowable expenses
Not many Pension contributions to approved schemes Professional subscriptions Payroll giving donations to charity Very limited travel expenses Other expenses which are vital for performance of job ( ie virtually none)

Benefits in kind
These occur when the employee receives goods services the loan of assets

from employer, on top of money and they are not on the tax-free list (see above)

Types of employee
Two types: P11D employees: Those earning at least 8,500 including benefits in kind, and directors irrespective of earnings Lower paid employees: those earning less than 8,500

Benefits in kind
P11D or lower paid? Benefits taxable for all employees: Vouchers Accommodation Benefits taxable only for P11D employees: Accommodation ancillary costs, eg gas and electricity Assets loaned by employer Cars Fuel Beneficial loans Private health insurance

Benefits taxable for all employees


Vouchers:
Credit cards Book and record tokens

Accommodation:
Annual value if owned by employer Higher of rent or annual value if rented If property cost> 75,000 an additional benefit of (Cost - 75,000) x Official Rate is added. MV if property acquired > 6 years ago

Benefits taxable only for P11D employees


Accommodation ancillary costs Assets loaned by employer Cars Fuel Beneficial loans Private health insurance

Accommodation ancillary costs


Costs connected with accommodation paid for by employer are added to taxable income, eg Gas and electricity Council tax Water rates Insurance For furniture see next slide

Assets loaned by employer


Has to be some private use eg clothes, furniture Taxable amount is 20% of MV when first loaned Taxed for all periods asset available If asset is subsequently given to employee:

Additional taxable amount = higher of 1) MV on sale less amount paid by employee OR 2) MV when first loaned LESS amounts already taxed LESS amount paid by employee If a car or bike only (1) applies

Cars(1)
Has to be some private use to be taxed Taxable benefit = List price x applicable percentage less employee contributions

List price = List price plus optional accessories less capital contribution up to a maximum 5,000

Cars(2)
Applicable percentage = < 75g/km 5% 76g/km 120g/km 10% 120g/km 125g/km 15% FOR CARS OVER 125g/km: 15% PLUS
CO2 minus 125

5 rounded up to a maximum of 35% Add 3% if diesel engine (up to 35%)

Fuel taxable benefit


There must be some private use Taxable benefit =18,800 x car applicable percentage Employee contributions are not deducted They either cover the cost of private fuel meaning NO TAXABLE BENEFIT OR they do not cover the cost GIVING A FULL FUEL BENEFIT David Harrowven FA 2011 examples

Beneficial loans
A loan provided by employer where the interest rate is less than the Official Rate Taxable benefit = Loan x Official rate Then interest paid by employee is deducted If loan varies during tax year, loan = Loan at start + loan at end 2 No taxable benefit if total loans from that employer are less than 5,000.

Other benefits
Private health insurance benefit = accrued cost to employer
Vans with private use the benefit = 3,000 Private fuel for van additional 550