E M P L O YM E N T I N C OM E EMPLOYED vs SELF EMPLOYED 1 Employee Control Financial risk involved Equipment Substitute Responsibility of investment Holidays No. of persons contracted with Employment protection Mode of payment Position Obligation Wording used in contract Self employed Controlled by employer Not subject to control No financial risk as no capital Financial risk as own capital Provided by employer Uses his own equipment Cannot allocate the work Delegates & supervises work Not responsible Responsible for management and investment Gets paid & sick leave No paid leaves Work for single firm More than one firm Protected under contract service No employment protection Paid weekly / monthly / yearly Paid per contract Integral part of business Not an integral part of business Obligation to accept work No obligation to accept work Contract of service Contract for service Calculation of employment income Employment income calculated for a specific tax year. 23/24 = 6/4/2023 - 5/4/2024 Employment income is placed In Non-saving column Salary XXXX XXXX Bonus Commission XXXX Taxable benefit Allowable deductions Employment income XXXX (XXXX) XXXX Allowable deductions · Fee and subscription paid to professional body related to employment. Contributions to a registered occupational pension scheme. Payments to charity under a payroll deduction/payroll giving scheme. Qualifying travel expenses Home Office Client Approved millage allowance (AMAP) calculated when employee use his personal car for job purpose. Allowance is available for miles travelled for employment use. First 10,000 business miles @ 45p per mile Miles over 10,000 @ 25p per mile For general expenses Any expenditure which full fill the criteria of WHOLLY, EXCLUSIVELY and NECESSARILY are allowable deduction. Exception For site based employees cost of normal commuting (home to office) is allowed provided they do not spend more than 24 months on one site. Calculation of taxable benefits Benefits Exempt benefit Benefit which are neither computed nor tax is paid Taxable benefit Benefit which are computed and tax is paid over these benefits Three general steps: 1) Calculate benefit as per rules = £24000 (assumed) 2) Time apportion if benefit is not enjoyed for the whole year = £24000 x 6/12 = £12,000 3) Deduct employees contribution = £12,000 - £4000 = £8000 Accommodations Accommodation Non-job related Job related For better performance For safety purposes Employer rented Benefit = higher off For proper performance Exempt Rent paid by employer Annual value of house Employer owned In Expensive accommodation Cost ≤75,000 Expensive accommodation Cost > £75,000 Benefit =Annual value Two benefits 1st benefit = annual value Additional benefit = (cost -75,000) x 2.25% Cost of providing : · Up to 6 years : Original Cost + Enhancement Expenses (but incurred before start of current tax year ) · More than 6 year : Market Value ( when provided ) + Enhancement Expenses ( incurred after providing but before start of current tax year ) Ancillary benefit along with accommodation (e.g. lighting , heating , repair , maintenance) Job related accommodation No job related accommodation Benefit = lower off Benefit = Cost paid by employer Cost paid by employer 10% of Net emoluments Example :1 On August 6, 2023, Shehraam was provided with accommodation by his company. The employer paid an annual rent of £20,000 for this accommodation, which has an annual value of £18,000. Additionally, Shehraam contributes £200 per month for private usage of the house. Calculate the taxable benefit for the tax year 2023/2024. Annual value = Rent paid by employer = Less: Time apportionment of benefit = Use contribution = Taxable benefit = Example :2 On October 1, 2023, Shehraam was provided with accommodation by his company. The annual value of the house is £25,000. His employer purchased this accommodation for £70,000 two years ago. Shehraam contributes £500 per month for private usage of the house. Calculate the taxable benefit for the tax year 2023/2024. Annual value = Less: Use contribution = Taxable benefit = Example : 3 On 1/11/2023 Shehraam was provided with accommodations by his company. Annual value of the house is £20,000. Shahraam contributes £500 per month for the private usage of the house. His employer had purchased this accommodation of £85,000 on 1.1.2020. He incurred repairing cost of £15,000 right after the purchase. During 2021 he constructed a new room and incurred cost of £10,000. His employer also got this house Painted right before providing to shahraam. Cost of £7,000 was paid on 30-8-2023. Calculate taxable benefit for the tax year 23/24. Annual value = Additional benefit = Example : 4 Mr. A works as a designer at Fashion PLC. Upon commencing his employment on January 1, 2017, he was provided with accommodation. The market value of the accommodation was £190,000 as of January 1, 2017. Fashion PLC purchased this accommodation for £80,000 on August 1, 2004. The company has incurred the following costs related to this accommodation: - August 30, 2004: Repairs costing £10,000 - October 1, 2010: Repairs costing £12,000 - June 30, 2018: Construction of a wall costing £30,000 - October 20, 2019: Painting costing £5,000 Mr. A contributes a total of £2,000 towards the private use of the accommodation. The annual valve of accommodation is £35,000. Calculate the taxable benefit for the tax year 2023/2024. Annual value = Additional benefit = Beneficial loan Loan which is issued to be given to employee by employer at below the interest rate. Beneficial loan Not qualifying loan Qualifying loan > 10,000 Benefit = Loan X interest saved < 10,000 Exempt (Official rate of interest is 2.25%) Example: 5 On 1st October 2023 Mr. Edward was provided with loan of £15,000 at 1.5% pa. Calculate taxable benefit. Taxable benefit = If the amount of loan fluctuate during the tax year then two methods are used to calculate the taxable benefit Average method Benefit = (o/b + c/b)/2 x interest saved Strict method Benefit = Daily rate is applied on outstanding amount Example: 6 On 6th June 2023 Mr. Kareem was provided with a loan of £200,000 at1%. On 30th December 2023 Kareem repaid £50,000. Calculate taxable benefit foe tax year 2023-2024. Strict method = Average method = Example: 7 On 1 May 2023 Firstly plc. provided Joe with an interest free loan of £120,000 so that he could purchase a holiday cottage. Joe repaid £50,000 of the loan on 31 July 2023, and repaid the balance of the loan of £70,000 when he ceased employment with Firstly plc. on 31 December 2023. Calculate taxable benefit for the tax year 2023-2024. Strict method = Average method = USE OF ASSET Use of asset Employer owned asset Employer rented asset Benefit = MV x 20% Benefit = higher off MV x 20% Rent paid by employer First mobile phone available for private use is exempt. Example: 9 On 6th July 2023 Nadia was provided with a CD player. His employer purchased this CD player for £12,000. Nadia use 20% CD player for job purpose. Nadia contributes £20 per month for the private usage of CD player. Calculate taxable benefit. Taxable benefit = Less: Use contribution = Benefits are never use apportioned. Example: 10 On 6th May 2023 Mr. Simon was provided with a music system. His employer pays annual rent of £1,500. Market value of music system is £6,000. Simon paid £100 for the private use of music system. Calculate taxable benefit for the tax year 2023-2024. MV x 20% = Actual rent paid by employer = Less: use contribution = Transfer /GIFT OF ASSET Gift of asset Second hand asset First hand asset Benefit = higher off Benefit = Market value of asset MV when asset was first provided for use Less: benefit already taxed = xxxx = (xxx) xxxx MV when asset was gifted Example: 11 On 6th April 2021 Aleena was provided with a computer for use only when market value of computer was £12,000. On 6th April 2023 his employer sold this computer to Aleena for £200 when market value of computer was £9,000. Calculate taxable benefit for tax year 2023-2024. MV at the time of gift = MV when asset was first provided= Example:12 On 6th April 2021 Aleena was provided with a computer for use only when market value of computer was £15,000. On 6th July 2023 his employer sold this computer to Aleena for £1,200 when market value of computer was £8,500. Calculate taxable benefit for tax year 2023-2024. Use of asset (benefit) = Gift of asset (benefit) MV at the time of gift = MV when asset was first provided= Total benefit = Example : 13 On 10th December 2023 Alpha ltd gifted a computer to Solomon. His employer purchased this computer for £4,500. Solomon paid £500 for this gift. Calculate taxable benefit for the tax year 2023-2024. Benefit = Van Van Job related Non-job related 100% job related use 100% Non-job related use Or Or Significant job related use Significant Non-job related use Or Van with zero CO2 emission rate Exempt Taxable benefit = £3960/year Fuel related to Van Van's fuel Job related Exempt Non-job related Taxable bereft = £757/years Example : 13 On 10th November 2023 Guru was provided with van. He was also provided with fuel for private journey. Guru contributes £10 per month for private use of fuel. Guru does not contribute for van. Calculate taxable benefit for the tax year 2023-2024. Van = Van fuel = Partial contribution of fuel cannot be deducted. Car benefit Car Job related car Pool car Non job related car Exempt Benefit = Cost of car X %age 100% job related Exempt Cost of car = List price + accessories fitted – capital contribution & & We do not consider the actual purchase price of the car Contribution made by employee towards the cost of car .Maximum capital contribution of £5,000 can only be deducted. Appropriate percentage – petrol and diesel cars CO2 emissions per km Petrol car and diesel car meeting the RDE2 standard % Diesel car not meeting RDE2 standard % - 51 – 54 grams 15 19 55 grams 16 20 Each complete additional 5 grams emission above 55 grams An additional 1% is added to the 16% or 20% up to a maximum of 37% Note that the appropriate percentage for a diesel car is 4% higher than for a petrol car, unless the diesel car meets the real driving emissions 2 (RDE2) standard (i.e. European standard for low nitrogen oxide emissions). Appropriate percentage – electric cars & hybrid-electric cars A 2% percentage applies to electric cars with zero CO2 emissions. For hybrid-electric cars with CO2 emissions between 1 and 50 grams per kilometre, the electric range of a car is relevant: Electric range % 130 miles or more 2 70 to 129 miles 5 40 to 69 miles 8 30 to 39 miles 12 Less than 30 miles 14 Fuel for car Fuel Job related Exempt Non job related Taxable benefit = £27,800 x % Car % will be use for fuel as-well. Partial contribution cannot be deducted. Driver of the car Driver Job related Exempt Non-job related Benefit= cost paid by employer Petrol driven car co2 emission/KM = 53g/km Petrol driven car co2 emission/KM = 55g/km Petrol driven car co2 emission/KM = 69g/km Diesel driven car co2 emission/KM RDE2 standard complied = 99g/km Diesel driven car co2 emission/KM RDE2 standard complied = 199g/Km Diesel driven car co2 emission/KM RDE2 standard is not complied = 199g/Km Diesel driven car co2 emission/KM RDE2 standard is not complied = 179g/km Example : 14 Marwa was provided with a diesel car, meeting the RDE2 standard, on 6 August 2023. The car had a list price of £13,500 but Fashionable plc secured a discount and paid £12,500. The car has an official CO2 emission rate of 107g/km. Marwa was also provided with fuel for private use between 6 August 2023 and 5 April 2024. % = Car benefit = Fuel benefit = Example: 15 Betty was provided with a diesel company car throughout the tax year 2023/24. The car does not meet the RDE2 standard. The car has a list price of £16,400 and an official CO2 emission rate of 137g/km. Betty was also provided with fuel for private use between 6 April and 31 December 2023. %= Car benefit = Fuel benefit = Example: 16 Francisco was provided with a new petrol car throughout the tax year 2023/24. Francisco was required to contribute £3,000 towards the purchase cost. The car has a list price of £22,600 and an official CO2 emission rate of 214g/km. Francisco paid the company £1,200 during the tax year 2023/24 for the private use of the car. Francisco was provided with fuel for private use between 6 April 2023 and 5 April 2024. He paid Fashionable plc £600 during the tax year 2023/24, towards the cost of private fuel, although the actual cost of this fuel was £1,000. %= Car benefit = Fuel benefit = Partial contribution cannot be deducted Example: 17 Derek was provided with a hybrid-electric car throughout the tax year 2023/24. The car has a list price of £60,000. The official CO2 emission rate of 39g/km and the electric range is 41 miles. Fashionable plc also paid for the road tax, insurance and maintenance on the car, which cost £1,600 during the tax year 2023/24. Derek was provided with fuel for private use throughout the tax year 2023/24. Car benefit = Fuel benefit = Running lost of car = Example: 18 Eisha was provided with an electric company car throughout the tax year 2023/24. The car has zero CO2 emissions. The car had a list price of £17,000. Eisha was not provided with fuel for private use. Car benefit = Vouchers Vouchers Cash voucher Non cash voucher/Credit token Taxable benefit = Face value Taxable benefit= Cost paid by employer Taxabl benefitenceScholarship Scholarship is exempt for the person who actually receive it In case the scholarship is taken for connected persons then amount withdrawn up to 25% of the fund is exempt. Otherwise the whole amount is taxable as benefit. Example: ABC Ltd provided following scholarship to their Employee'S relatives. Total scholarship fund was £500,000 Mr. A relative £130,000 Mr. B relative £25,000 Mr. C relative Mr. D relative £40,500 £150,000 Taxable benefit Mr. A relative Mr. B relative Mr. C relative Mr. D relative = = = = Medical Treatment An annual £500 exemption per employee, where an employer pays for the medical treatment. If exceeds only over and above would be taxable. The exemption applies where medical treatment is provided to an employee to assist them to return to work after a period of absence due to ill-health or injury. Trivial benefits An exemption for trivial benefits which do not cost more than £50 per employee provided these benefits are not cash or a cash voucher. If exceed whole amount is taxable benefit Exempt benefit Payments for private incidental expenses are exempt up to £10 per night when spent outside the UK, so the allowance does not result in a taxable benefit. Note that the equivalent UK allowance is only £5 per night. If exceed whole amount is taxable benefit Up to £8,000 of the relocation costs is exempt If exceeds only over and above would be taxable. The provision of a place in a workplace nursery does not give rise to a taxable benefit. Payments for home working are exempt up to £6 per week (without evidence) Recreational and sporting facilities are exempt The provision of meals in a staff canteen Entertainment provided by a third party for an employee by reason of his employment Gifts provided by a third party for an employee by reason of his employment. Provided the cost of gifts from any one source must not. exceed £250 per tax year. If exceed whole amount is taxable benefit Long service awards of up to £50 per year of service. The award must be non-cash award and the employee must have worked at least 20 years. If exceeds only over and above would be taxable. Work place nurseries and workplace parking. Medical premium to cover treatment outside the UK Mobile phones-restricted to one phone per employee Staff parties, provided the cost per staff member per year is £150 or less. If exceed whole amount is taxable benefit Works buses and mini buses. A mini bus must have a seating capacity of 9 or more. A works bus must have a seating capacity of 12 or more. Assessment criteria of earnings for employees Earlier of: I Date of entitlement Date receipt Bonus = £150,000 Date of entitlement Date receipt Bonus = £200,000 Date of entitlement Date receipt Assessment criteria of earnings for directors Earliest of: Date of entitlement Date receipt Date at which amount has been credited to company records End of the period of account , if earning has been determined before the end of period of account Date determined , if it is determined after the end of the period of account.
