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Hint
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Answer
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can net taxable earnings be less than zero?
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no
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expenses incurred by employee are allowable deductions if:
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employee is obliged to incur and pay the expense
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expense is wholly, exclusively and necessarily in the performance of duties of the employment
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examples of deductible expenses:
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professional subscription fees
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proportion of expenses if required to work from home
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necessary tools, uniforms etc
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employee's cash contributions into an occupational pension scheme
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where an employee is reimbursed expenses by the employer, the amount received is either
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taxable income
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or exempt (as listed above)
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travel between home and work is an allowable expense if:
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employee has no normal place of work
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employee's home is the normal place of work
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employee has a temporary workplace (for no more than 24 months)
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entertaining expenses 3 scenarios:
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x
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reimbursed directly
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exempt income for employee, disallowed expense for the employer
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specific entertaining allowance
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income for employee, deduct entertaining expenses incurred from employee's income, full allowance is disallowed expense for employer
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general/round sum allowance
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income for employee, deduct allowable expenses (NOT entertaining) from employee's income, full allowance is a deductible expense for employer
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mileage rate allowance for car/van
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45p first 10,000 miles 25p thereafter
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mileage rate allowance for motorcycle
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24p
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if mileage payments received from employer exceed the statutory rate:
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excess is a taxable benefit
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if mileage payments received from employer are less than the statutory rate:
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shortfall is an allowable deduction
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passenger payment rate
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5p
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if passenger payments received from employer exceed statutory rate:
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excess is a taxable benefit
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if passenger payments received from employer are less than the statutory rate:
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shortfall is NOT an allowable deduction
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car benefit is calculated as
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manufacturer's list price x co2 emissions %
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deduct from list price:
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any capital contribution made by employee
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to a max of
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£5,000
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when is any monthly contribution from employee deducted?
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after above calculation
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if accommodation is job-related then accom is an
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exempt benefit
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benefit for all living expenses is limited to:
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10% employee's net earnings
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employees net earnings calculated by:
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salary, bonus etc
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add
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benefits (excluding living expenses)
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less
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allowable deductions
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less
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statutory mileage rate scheme
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less
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occupational pension contributions
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=
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net earnings
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if an employer purchases an asset and gives it to an employee immediately, employee is taxed on
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the cost to the employer
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where an employee has use of an asset and is then given the asset, the benefit is the higher of:
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market value when gifted
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or
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market value when first provided less benefit already taxed under private use
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i.e.,
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20% of the market value p.a. for as long as the asset has been lent to the employee
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when the asset is a car, van or bike the benefit is always
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the current market value
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in all cases employee contributions are
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deductible
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what is the official rate of interest (ORI)
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2.25%
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what is the taxable benefit on loans made to an employee below the ORI?
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the difference between the interest due at the ORI and the interest actually paid.
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there is no taxable benefit where:
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total loans to an employee less than or equal to £10,000 in the tax year
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there is no taxable benefit where:
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the loan is made on normal commercial terms by a money lending business
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if all or part of a loan to an employee is written off, the amount written off is treated as
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a taxable benefit for both income tax and class 1 NICs in full at the time of the write-off
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if the loan balances changes during the year there are two methods to calculate the benefit. which is the default method?
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average
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which method is by election?
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strict
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the taxable benefit is given by:
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loan amount (under strict/average method) x ORI
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less:
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interest actually paid in the year
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gives
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assessable benefit
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what is an optional renumeration arrangement?
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salary sacrifice in return for a benefit
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the taxable value of the benefit is the higher of:
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the amount of cash pay given up
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or
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the taxable value under the normal benefit rules
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the taxable amount is treated as a benefit and subject to
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class 1A NICs
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the optional renumeration rules must be applied even if the benefits would normally be exempt except these are treated as normal exempt
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pension savings
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employer provided pension advice
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childcare
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treated as normal, taxable
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ultra-low emission cars - any benefit is calculated using the company car benefit rules
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the following are exempt benefits if provided to an employee who is employed abroad:
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the cost of board and lodging abroad
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travel home (any number of return visits)
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for absences of 60 days or more, travelling expenses for a spouse and minor children
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overseas medical treatment and insurance
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limited to how many spouse and child visits per tax year
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up to two
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examples of exempt benefits:
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loans less than 10,000 pa
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job related living accommodation
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parking space
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one mobile phone
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insignificant private use of computer equipment
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pension advice up to £500 per tax year
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workplace childcare
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one medical check (not including treatment) and one health screen
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canteen if available to all staff
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annual social events paid for by the employer up to £150 per head per year
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trivial benefits are exempt if they meet the following conditions:
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cost does not exceed £50
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not cash or a cash voucher
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not provided in recognition of services (e.g. exempt for a birthday)
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what is the annual cap of such benefits when provided to certain directors?
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£300
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taxable benefits general rules
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taxable amount is the cost to the employer
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remember to
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time apportion for part availability
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and
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payments made by the employee are deducted
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taxable benefit for living accommodation when employer owns property
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rateable value (given) and potential extra charge
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how to calculate extra charge
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(cost -75k) x ORI at the start of the tax year
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taxable benefit for living accommodation when employer rents property
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higher of rateable value and rent paid by employer
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what happens if the employer owned the property for more than 6 years before the employee moved in?
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use the MV at the date the employee moved in plus any capital improvements since that date but before the start of the tax year.
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when furniture is provided, how is benefit calculated when employer owns the asset?
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MV when first provided to employee x 20%
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when employer rents the asset
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higher of: 20% x MV and rent paid by employer
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