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Lecture Notes for Income from Employment for the module Principles of Taxation
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This document provides an overview on taxing income from employment
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5001ACC – Lecture 3Employed v Self-employed
Wider range of expenses is allowed against income
Delay in payment of income tax liability
When is someone employed or self-employed?
Contract of service
Contract for services
More detail required; case law established:
Control
Remuneration and financial risk
Equipment
Work and performance correction
Annual leave and sickness
Exclusivity
Personal Service Companies
So, people tried to get the benefits of both
- Personal service companies = the answer
- Provide services personally but invoice from your own limited company
Risk of distorting taxpayer behaviour
- HMRC – anti-avoidance legislation – IR35 – looks past the ‘intermediary’ company
- Need to demonstrate that you are not an employee in all but name
- E.g., your company is free to provide alternative staff if you are not available
- Shift to ‘customer’ to deduct the IT and NIC (6/4/2020)
Managed Service Companies
- Groups of workers = shareholders in the company
- Anti-avoidance legalisation = in force (treat like employees)
Basis of Assessment
Tax period
- Between 6th April to 5th April the following year
When to tax
- Liable to tax = when received/receivable
- Not accruals basis
When is it ‘received’? Earlier of.
- Actually received
- Entitled to receive it
- Co-director = slightly different
Employment Income
, It is perhaps helpful to identify that is treated as non-taxable (exempt)
Non-Taxable
Free/subsidised meal in staff canteen
Day subsistence
Long service rewards (£50 per year, non-cash)
Staff Parties (≤£150 per head)
Free parking
Termination payments
Bicycles and cycling safety equipment/subsidised public transport
Approved Mileage Allowance Payments (AMAPs)
Removal expenses (≤£8,000)
Provision of workplace childcare, recreation, or sports facilities
<£55 per week towards alternative childcare
Small gifts <£50 cost to the employer
Taxable
Wages and salaries
Bonuses, commissions, and fees
Expense allowance
Termination payments (>£30,000)
Pensions arising from employment
Benefits in Kind
Approved Mileage Allowance Payments (AMAPs)
Employee= uses OWN vehicle for business travel
- Employer compensates for cost
- HMRC set approved amounts per mile
- These amounts are the AMAP
If employer pays more or less, the following is relevant:
- >AMAP – excess is taxable as employment income
- <AMAP – can claim the difference as an allowable expense to reduce the employment
income
Rates
Can also receive up to 5p per mile
for each passenger carried on a
business trip
If paid, the AMAP you don’t declare
(exempt) the income on your tax
return
– only
where you claim more or
need to pay tax on extra
payments
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