Employment income

Employment income

Tax year
Non saving income
6/4/2016 – 5/4/2017
column

£
Salary xx
Plus : Bonus xx
Plus : Commission xx
Plus : Taxable benefit xx
Less : Allowable deduction (xx)
Employment income xxx

©ACCA
Allowable deduction
1. Fee and subscription paid to professional body related to employment.
2. Contributions to a registered occupational pension scheme.
3. Payments to charity under a payroll deduction/payroll giving scheme.
4. Qualifying travel expenses
NOT Allowed
Home Office

Allowed
Client
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.

©ACCA
5. Statutory millage allowance (SMA) 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
Class example

6. Insurance and liability related to employment

7. Any expenditure which full fill the criteria of WHOLLY, EXCLUSIVELY and
NECESSARILY are allowable deduction.

©ACCA
BENEFIT : Any thing paid to employee other than salary, bonus and commission is
known as benefit.

BENEFIT

EXEMPT BENEFIT TAXABLE BENEFIT

Benefit which are computed and tax is paid over

Benefit which are neither these benefits
computed nor tax is paid

Benefit which are outside
the scope of VAT
3 steps :
1) Calculate benefit as per rules = 24,000 (assumed)
2) Time apportionment if benefit is not enjoyed for the
whole year = 24,000 x9/12=18,000
3) Deduct employees contribution
=18,000 – 2,000
= 16,000 = taxable benefit

©ACCA
 ACCOMODATION :
ACCOMMODATION

JOB RELATED NON JOB RELATED

 For better performance
 For safety purpose
 For Proper performance Employer rented Employer owned
Exempt Benefit = higher off

In Expensive Expensive
Rent paid by Annual value accommodation accommodation
employer of house Purchase Cost < Purchase Cos t >
75,000 75,000
Benefit =Annual value Two benefit
1st benefit = annual value
nd
2 benefit =
(cost -75,000) 3%

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 )
©ACCA
Ancillary benefit along with accommodation
 Running cost of accommodation paid by employer

Running cost of accommodation

Related to job related Related to non job related

accommodation accommodation

Benefit = lower off

Benefit = cost paid by employer

Cost paid by employer Employment income x 10%

©ACCA
CAR

Job related car 100% related to job = exempt

CAR POOL car  Car which is provided to no of employees

 No private use or private use is incidental
 No one is entitle to park the car at or near his
residence.
 Pool car = exempt 0

NON Job related car 100% private use or job use + private use
Benefit = (cost of car) x %age

Cost of car
=List price + accessories fitted – capital contribution

 We do not consider purchase  Contribution made by employee

price of the car towards the cost of car Maximum
 If list price is not provided in capital contribution of £5,000 can
exam the use MV only be deducted.©ACCA
Percentage % : car %age depends on co2 emission level.
Co2 emission level Percentage
< 50 grams 7%
51 grams – 75 grams 11%
76 grams – 94 grams 15%
95 grams 16%
> 95 grams Add 1% in 16% for every increase of 5 grams above 95 grams
FOR DIESEL DRIVEN CAR ADD 3% IN FINAL %age.

Maximum percentage can be 37%

Running cost of car paid by employer is exempt.

©ACCA
CLASS PRACTICE

©ACCA
Fuel :
FUEL

JOB RELATED NON - JOB RELATED

EXEMPT  Ignore purchase cost of fuel

paid by employer.
Benefit = £22,200 x %age
%age of car benefit is also
used for fuel benefit.

Partial contribution cannot

DRIVER
Driver : be deducted

JOB RELATED NON - JOB RELATED

EXEMPT Benefit = cost paid by employer

©ACCA
Beneficial loan :
Loan which is issued to employee by employer at below the interest rate.
Beneficial loan

QUALIFYING PURPOSE Non qualifying purpose

Exempt

Total amount loan Total amount of loan

< 10,000 > 10,000
Exempt benefit = loan x interest saved
(Official rate of interest is 3.00%)

Where amount of loan fluctuate during the tax year than 2 method are
used to compute the taxable benefit

Average method Strict method

Benefit = (O/b + c/b)/2 x interest saved Benefit = Daily rate is applied on outstanding amount

 The average method applies unless either the employee or HM revenue and
Customs (HMRC) elect for the strict method.
 HMRC only elect for the strict method when it will make a significant difference.
©ACCA
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

 Benefit are never use apportioned except use of computer.

 First mobile phone available for private use is exempt.

GIFT OF ASSET GIFT OF ASSET

FIRST HAND ASSET SECOND HAND ASSET

Benefit = MV of the asset Benefit = higher off

MV at the time of gift MV when first provide = xx

less benefit already taxed = (x)
Benefit ©ACCA = xx
VAN :
VAN

Job related Non Job related

 100% job use (or)  100% private use (or)
 Significant job use  Significant private use
exempt benefit = £3,170/year

FUEL :
FUEL

Job related Non Job related

benefit = £598/year
exempt

Partial contribution cannot be deducted ©ACCA

Scholarship
SCHOLARSHIP

Provided to employee Provided to employee ‘s connected person

Exempt benefit

Scholarship amount Scholarship amount

< 25 % of total > 25 % of total
scholarship scholarship
Connected person = exempt
Employee’s taxable benefit
Employee = exempt
= scholarship amount
Connected person = exempt

©ACCA
VOUCHER
Cash voucher Benefit = face value

VOUCHER Non Cash voucher Benefit = cost paid by employer

Credit token Benefit = cost paid by employer

©ACCA
Medical Treatment

An annual £500 exemption per employee, where an employer pays for

the medical treatment.
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.

©ACCA
Exempt benefit
1. 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.
2. Up to £8,000 of the relocation costs is exempt
3. The provision of a place in a workplace nursery does not give rise to a taxable benefit.
4. The exemption for childcare vouchers is £55 per week where the employee is a basic
arte taxpayer, £28 per week for higher rate tax payer and £25 for additional rate
taxpayer
5. Recreational and sporting facilities are exempt
6. The provision of meals in a staff canteen
7. Payments for home working are exempt up to £4 per week
8. Entertainment and gifts provided by a third party for an employee by reason of his
employment.
9. The cost of gifts from any one source must not exceed £250 per tax year.
10. 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.
11. Work place nurseries and workplace parking.
12. Medical premium to cover treatment outside the UK
13. Mobile phones-restricted to one phone per employee
14. Staff parties, provided the cost per staff member per year is £150 or less.
15. Works buses and mini buses. A mini bus must have a seating capacity of 9 or more. A
©ACCA
works bus must have a seating capacity of 12 or more.
RULE FOR BONUS
Employee Directors

Earlier off: Earlier off:

Date of entitlement Date of entitlement
Date receipt Date of receipt
Date at which amount is credited
to companies account.
Date of determination if earning
are determined after the year end
date.
Year end date if earning are
determined before the year end
date.
EMPLOYED v SELF EMPLOYED

Employee Self employed

Control Controlled by employer Not subject to control
Financial risk involved No financial risk as no capital Financial risk as own capital
Equipment Provided by employer Uses his own equipment
Substitute Cannot allocate the work Delegates & supervises work
Work correction Gets remuneration Client does not pay
Holidays Gets paid & sick leave No paid leaves
No. of persons contracted Work for single firm More than one firm
with
Employment protection Protected under contract service No employment protection
Mode of payment Paid weekly / monthly / yearly Paid per contract
Position Integral part of business Not an integral part of business
Obligation Obligation to accept work No obligation to accept work
Wording used in contract Contract of service Contract for service

©ACCA