12 - Employment income - IT and NIC.

Employment income - allowable expenses:

Entertaining, travel and subsistence incurred exclusively in employment.| Professional bodies subscriptions.| Occupational pension scheme contributions.| SIP shares*. | AMAP. | Charitable donations under a payroll deduction scheme.

Employment income allowable expenses - Travel expenses restrictions:

Not travel from home to permanent workplace. | Travel from home to a temporary workplace is allowed if the placement is expected to last less than 2 years.

I.T. Exempt loan from employer limit:

up to £10,000.

I.T. exempt benefits example:

Job related accommodation.

Income tax medical exempt benefits:

Recommended medical treatment assisting return to work up to £500. | Eye care tests.

I.T. and subsidised canteen:

exempt benefit unless part of salary sacrifice scheme.

I.T. exempt benefit towards household costs:

£6 per week* where the employee works from home.

Relocation expenses exempt benefit limit:

up to £8,000.

Income Tax exempt benefit for annual party limit:

£150 per person per annum.

Employee I.T. and car capital contribution limit:

£5,000 allowable.

Employee I.T. and fuel contributions:

not allowable

Approved mileage allowance payments (AMAPs) is applied if...

employee uses own car, van, motorcycle or bicycle for BUSINESS PURPOSES. Shortfall is allowable deduction.

Passenger's AMAPs for taking colleagues on the same business trip rate:

5p per passenger (but no deduction for a shortfall).

Car benefit - type price under consideration and treatment of running costs:

List price, including extras. | Including all running costs (except fuel).

Private fuel benefit formula:

£ 24,500 × % × number of months

Private fuel benefit and employee contributions:

ignored unless reimburses private fuel in full.

Car benefit maximum %:

37%

I.T. living accommodation benefit - basic charge - taxable amount formula:

higher of | annual value | rent paid by employer.

Expensive accommodation charge formula:

(Cost − £75,000) × ORI

Living accommodation - Furniture use - taxable benefit formula:

20% × MV when first provided. | Also 20% in job-related accommodation but restricted to max 10% of other employment income.

Living accommodation - Council tax, heating, electricity and decorating I.T. treatment:

cost to employer

Where the employer rents the accommodation there can never be...

never be an expensive accommodation charge.

Property cost for the Expensive accommodation charge: formula + exception

Acquisition cost + capital improvements up to the START of the tax year.

Job-related accommodation is an accommodation which is:

Necessary for proper performance or employee's duties.| Or provided for the better performance of duties and it is customary to prove such accommodation.| Or provides as part of special security arrangements because of specific threat to worker security.

Beneficial loan made to an employee - taxable benefit formula:

(Capital* × ORI) − Interest actually paid

Beneficial loan to employee - Average method of capital calculation formula:

(opening balance + closing balance) ÷ 2

Beneficial loan to employee - Precise method of capital calculation explanation:

Calculated each month on balance outstanding.

Beneficial loan to employee - there no taxable benefit if:

Total loans outstanding at any time is no more than £10,000, | or loans made on ordinary commercial terms.

I.T. taxable benefit - Use of assets formula:

20% × MV when first made available

Assessment of taxable benefit - Gift of NEW assets:

cost to employer

Assessment of taxable benefit - Gift of USED asset:

the greater of:

Employer's gift of assets rules do not apply to transfer of:

Used car or van. | Bicycle provided to work.

What is a pensionable age and what is the consequences of that?

66 years. | Pensioner does not pay the NIC contributions.

Tax advantage of granting a share option:

no tax (in both tax advantaged and non-tax advantaged).

Exercise of non-tax advantaged (unapproved) share options - Employment I.T. charge formula:

MV at exercise date − cost of option and shares.

Cost of shares in chargeable gain calculation under unapproved and approved share options:

MV when exercised. | Exercise price (price paid).

Only a Class 1A NIC in respect of exercise of unapproved share option will be payable by the employer unless...

unless shares are quoted. In which case a class 1 will apply, which means the employee will also be liable.

BADR is available on sale of shares on standard rules* except for ... shares where...

except for EMI shares | where 2 years ownership commences at the date of the option is granted | and there is no 5% holding requirement.

Participation of tax advantaged share option schemes availability:

employer chooses | employer chooses | all employees (however it is acceptable to exclude employees who have worked for the company for less than 3 years).

Maximum value of tax advantaged share option schemes:

£30,000 per employee | £250,000 per employee [but scheme maximum is £3,000,000] | £500 per month.

Exercise period of tax advantaged share option schemes:

3 to 10 years. | Up to 10 years. | 3 or 5 years.

Determination of issue price of CSOP, EMI and SAYE:

MV | Issue at MV to avoid IT charge. | Not less than 80% of MV.

Base cost for CGT for CSOP, EMI and SAYE.

Price paid. | Price paid + discount taxed as income on exercise (if any). | Price paid.

When employee is excluded from CSOP?

If own more than 30% of company.

Company qualified for EMI scheme conditions:

Must have fewer than 250 full-time employees. | The company’s gross assets must not exceed £30 million.

Who can participate in Share Incentive Plan (SIP) and what is the limit of free shares awarded?

All employees. | £3,600 per year.

SIP shares. Depending on the terms of the specific scheme an employee may be allowed to buy up to...

lower of | £1800 | and 10% of salary.

SIP. Depending on the terms of the specific scheme the employer may choose to issue further free shares on a ... basis to the partnership shares.

2:1 basis

SIP and the special feature of its dividends:

Dividends paid on employee’s shares held under the plan can be reinvested tax free in further shares. | There is no limit to the amount of dividends that can be reinvested in the SIP.

Taxation of SIP depending of holding period:

I.T. and NIC free. | Lower of initial value of shares and value on the withdrawal date. | I.T. and NIC on the value at the time when shares cease to be held in the plan.

Base cost determination of SIP shares for CGT purposes:

MV when removed from a plan.

Dividend income due date:

31 January after tax year under self-assesment, | or earlier in instalments,

What is the term for a dividend paid in the form of an asset other than cash?

'dividend in specie'

Factors to assist in deciding the most appropriate option to recommend a suitable tax advantaged share scheme:

Participants - open to all/selective scheme. | Share awards vs share option scheme. | Financial limits - amount to be awarded. | Size of company - EMI only available to smaller companies. Holding period for shares and options.

Types of Lump sum payments from a taxing point of view:

Wholly exempt. | Fully taxable. | First £30,000 exempt*.

When a Lump sum payments are wholly exempt?

Payments for death, injury, disability.| Approved lump sum on retirement. | Statutory redundancy pay.

When a Lump sum payments are fully taxable?

Pay in lieu of notice (PILON). | Reward for past or future services. | Restrictive covenants (e.g. restraint of trade).

When Lump sum payments are assessed?

in the year of receipt

What is the order of IT treatment of Lump sum payments?

The contractual payment in lieu of notice is taxable as normal employment income | but the taxable portion of the ex-gratia payment is assessed to tax as the top slice.

NIC on non-contractual payments like Lump sum payments:

No employee NICs | but employer pays class 1A NICs on excess above £30,000.

Employee class NIC is based on 'cash earnings' which comprise...

Any remuneration derived from employment. | Vouchers exchangeable for cash or non-cash items. | Reimbursement of cost of travel between home and work.

NIC based 'Cash earnings' special example:

AMAP over to 45p per mile (so the excess is 'NICable' irrespective of total miles per year).

Employer Class 1 NIC due dates:

19th of the next month | or 22nd of the next month if paid electronically.

£4000 employer allowance NIC class 1 conditions:

Only available if Er Class 1 in the previous year was less £100,000. | Unavailable where a director is the only one employee in the company. | Claimed through the PAYE system.

NIC Class 1A due dates:

19 July following the tax year | or 22 July if paid electronically.

NIC implications in respect of CSOP, EMI and SAYE.

There is no national insurance implications.

Loan to a participator - 32.5% tax is not payable by a close company if...

Loan does not exceed £15,000. | Individual works full-time for the company. | Individual owns LESS than 5% of the ordinary share capital (all conditions must be satisfied).

Loan to a participator - tax implications for the close company:

The loan is subject to tax of 32.5%. | Loan is also a subject to NIC Class 1A.

Are shares a subject of NIC liability?

Only quoted shares, as they are 'readily convertible assets'. Employee and employer pay NIC Class 1.

What is the maximum value of EMI?

£250,000 per employee and £3,000,000 per scheme.

Taxable value determination for IT and NIC on EMI shares if the exercise price was granted at a discount formula:

Difference between | the grant date MV | and the exercise price (if any).

Examples of qualifying expenditure in respect of Relocation Exemption:

SDLT. | Estate agent fees (including selling old property). | Rent of temporary accommodation.

CSOP exercise period:

3 to 10 years.

EMI exercised period:

Up to 10 years.

SAYE exercise period:

3 or 5 years.

Advantages of using a year end on 30 April rather than 28 February under assumption that profits are increasing year by year:

Financial benefit (a lower amount of profits, being subject to tax). | Time for tax planning (the nearer AP is to the start of tax year the sooner the taxable profit for that tax year will be known). | Cash flow benefit*.

Determination of issue price of SAYE:

Not less 80% of MV.

Determination of issue price of CSOP:

MV

Determination of issue price of EMI:

Issue at MV to avoid IT charge.

Amy takes a loan from a bank for qualifying purpose*. State available reliefs for both sides:

The interest is deducted from Amy's total income. | The interest payable by the partnership on the loan from Amy will be deductible in calculating the taxable trading profit of the business.