Taxation( Finance Act 2015)

Brunel Business School

MG 3027

Majid Aminzare
( MSc , BSc , MICB, ACCA(P.Q ))
Surgery Hours:
Friday 16:00 – 18:00

Week 9
Income from employment(2)

1
 Income from employment (2)

Purpose:
•Recognise the general principles in calculating
benefits
•Recognise the exempt benefits
• calculate the benefits assessable on all employees
•Explain the basis of determining whether an
individual is a P11D employee and state the effect.
•Calculate the benefits arising on an employer-
provided vehicle.
•Identify the circumstances when the provision of a
loan will result in an employee benefit and calculate
the loan interest benefit.
2
 Income from employment (2)
Benefits in kind :
The term ‘’employment income’’ includes any
benefits in kind which an employee might
receive.

Benefits in kind consist of income received in the

form of goods or services ,rather than money .
the main benefits in kind are as follows:
 Living accommodation

 Assets loaned to the employee for private use

 Cars provided for private use

 Fuel provided for private use

 Beneficial loans 3
 Income from employment (2)
Benefits in kind :
For the purpose of assessing benefits in kind
,employees are divided into two classes. These
are ‘’P11D employees’’ and ‘’lower-paid
employees’’.
a) P11D employees comprise those employees
who earn at least £8,500 per annum and most
company directors.
The only exception are full time working
directors who earn less than £8,500 p.a. and
control no more than 5% of their company’s
ordinary share capital .
b) All other employees are non-P11D employee
or ‘’lower –paid employees’’. 4
 Income from employment (2)
Benefits in kind :
Lower-paid employees are taxed only on benefits that
are convertible into money ,and then only on the
amount of money that the employee could obtain in
this way.
P11D employees are generally taxed on the cost to the
employer of providing the benefits, whether or not
these benefits are convertible into money.
When comparing an employee’s earnings with the
watershed figure of £8,500 , it is necessary to take
into account all earnings ,including benefits in kind
valued as if the employee were a P11D employee.
No expenses may be deducted from earnings when
making this comparison ,apart from contributions to
an occupational pension scheme or to a payroll
giving scheme . 5
 Income from employment (2)
Benefits in kind :
Benefits assessable on all employees
Certain benefits are assessable in the
same way on all employees, regardless
of classification. The two main benefits
concerned are:

a) Vouchers which may be exchanged for

goods or services.
b) Living accommodation.

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 Income from employment (2)
Vouchers for goods or services
 All employees are taxed on the cost to their
employer of providing vouchers which may
be exchanged for goods or services.
 Entertainment and hospitality vouchers
provided by a person other than the
employer or someone connected with the
employer are exempt from income tax
unless provided as a reward for specific
services rendered by the employee.
 The provision of a cash voucher result in
taxable benefit equal to the amount of cash
into which the voucher can be converted. 7
 Income from employment (2)
Living accommodation:
All employees are taxed in the same way on the value
of any living accommodation provided for them by
their employer.
(a)Accommodation owned by the employer :

The employee is assessed on the “ annual value” of

the accommodation . In practice , this is taken to be
the accommodation’s rateable value , which was
used in the calculation of domestic rates.
(b) Accommodation rented by the employer :

The employee is assessed on the greater of the rent

paid by the employer and the accommodation’s
annual value .
 In either case , the assessable benefit in kind is
reduced by any contribution made by the employee . 8
 Income from employment (2)
Living accommodation:
(c) Expensiveaccommodation
Accommodation costing the employer more
than £ 75,000 is regarded as “expensive” and
gives rise to an increase in the assessable
benefit . This increase is calculated by
applying the official rate of interest to the
amount by which the cost of the
accommodation exceeds £ 75,000.

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 Income from employment (2)
Living accommodation:

Notes:
I. The cost of providing accommodation is
purchase price of the property ,plus the cost
of any improvements made to the property
before the start of tax year, less any capital
contribution made by the employee .
II. If the property acquired by the employer
more than six years before it was made
available to the employee , the market value
of the property should be replaced .
10
 Income from employment
Living accommodation:
Example 1:
As from 1 January 2015, an employee is provided by
his employer with the use of a house which has an
annual value of £ 5,300 . The following information
is relevant :
(a)The employer bought the house in 2012 at a cost of

£ 270,000 and spent £ 35,000 on improvements in

2013 .A further £ 10,000 was spent on
improvements in July 2015.
(a)The employee pays £3,000 per annum to his
employer in relation to this benefit .
Calculate the taxable benefit in 2015-2016 , assuming
that the official rate of interest as at 6 April 2015
was 3% per annum. 11
 Income from employment
Living accommodation:
Solution :

£
Annual value 5,300
Add: 3.% x (270,000+35,000-75,000)
6,900
12,200
Less: Employee contribution
3,000
Assessable benefit
9,200
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 Income from employment (2)
Job-related accommodation:
If accommodation provided by an employer for
an employee is job-related ,then no taxable
benefit arises. Accommodation is job-related if:

a) It is necessary for the employee to reside in

the accommodation for the proper
performance of his or her duties (e.g. a
caretaker who is required to live in a
caretaker’s flat on an employer’s premises)
b) The accommodation is provided for the better
performance of the employee’s duties and it is
customary for such accommodation to be
provided(e.g. hotel-worker). 13
 Income from employment (2)
Job-related accommodation:
Continue…
c) There is a special threat to the employee’s
security and the accommodation is provided
as part of security arrangement.

14
 Income from employment (2)
Assets loaned to the employee for private
use:
 If an employer lends an asset to an employee for his or
her private use, the employee is assessed annually on
20% of the market value of the asset on the date of the
loan .
 If the asset is subsequently sold or given to the
employee , he or she is additionally assessed on the
greater of :
(a)The market value of the asset when sold or given to
the employee , less any amount paid for the asset by
the employee and
(b)The market value of the asset when first loaned to the
employee , less the amounts already assessed during
the period of the loan , less any amount paid for the
asset by the employee. 15
 Income from employment (2)
Assets loaned to the employee for
private use:
Example 2:
On 6 April 2013, an employer purchase a music
system for £800 and immediately lends the
system to an employee for his private use .
The system remains in the employee’s
possession until 6 October 2015 when the
employee buys it from his employer for £100 ,
its market value on that day being £ 240 .
Calculate the assessable benefit in kind for
tax years 2013-2014 to 2015-16 inclusive.

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 Income from employment
Assets loaned to the employee for private use:
Solution :
£
£
2013-14 20% of £800 160
2014-15 20% of £ 800 160

2015-16 20% of £ 800 x 6/12 80

plus , the greater of:
I. 240-100=140
II. 800-160-160-80-100=300 300 380
Total benefit assessed over period of the loan
700
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 Income from employment
Cars provided for private use:
The assessable benefit is based on :
I. The list price of the car when new (even if
the employer bought it for less than list price
or bought it second –hand),including
standard accessories
II. The cost of all optional accessories(other than
mobile telephone) fitted to the car before it is
made available to the employee
III.The cost of any optional accessories (other
than mobile telephone) costing £100 or more
and fitted to the car after it is made available
to the employee.
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 Income from employment
Cars provided for private use:
(b) The taxable benefit is based upon the price
of the car less any capital contribution made
by the employee towards the cost of the car
(up to a maximum of £5,000).
(c) The assessable benefit for a tax year is
calculated by applying a percentage to the
figure calculated at (b) above.
(d) The applicable percentage depends upon
the car’s level of carbon dioxide
emissions(rounded down to the nearest
5g/km if over 95g/km).
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 Income from employment
Cars provided for private use:
For petrol-driven car in 2015-2016 this
percentage is computed as follows :
Carbon dioxide Applicable percentage
emissions
Not exceeding 50g/km 5%
51g/km to 75g/km 9%
76g/km to 94g/km 13%

95g/km 14%
Each additional 5g/km 1% increase

The percentage is increased by a further 3% for

most diesel-driven cars , but the maximum
applicable percentage is 37% in all cases.
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 Income from employment
Cars provided for private use:
Example 3:
During 2015-2016 , Mike is provided by his
employer with the use of a petrol-driven car
first registered in 2012 with a list price at
that time of £21,000 . His employer bought
the car for £ 16,700 in 2014. The car’s
emission rating is 166g/km . Calculate the
benefit assessable in 2015-2016 if:
I. The car is available to Mike throughout the
entire year
II. The car is made available to Mike only from 6
November 2015.
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 Income from employment (2)
Solution :
I. The fact that Mike’s employer bought the car
for £16,700 is irrelevant . The benefit is
based on the list price of the car and the
applicable percentage is:
Emission 95g/km 14%
Each 5g/km addition 14%
So 166g/km-95g/km=71/5gkm=14% (rounded down
to the nearest 5g/km if over 95g/km )
28% x £21,000=£5,880 benefit assessable

II 28% @ £21,000 X 5/12=£2,450.

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 Income from employment
Fuel provided for private use:
(a)The assessable fuel benefit for a tax year is
calculated by applying the same percentage
as is used in the calculation of the car benefit
to an amount which is set for that year . For
tax year 2015-2016 this amount is £22,100
(b) The charge is reduced proportionately if the
car is not made available to the employee for
the whole tax year and is also reduced if the
employee stops receiving fuel for private use
part-way through the year . However , a full
year’s tax charge arises if the employee then
starts receiving fuel for private use again
later in the same tax year. 23
 Income from employment
Fuel provided for private use:
(c)There is no assessable benefit if the
employee pays the full cost of all private fuel ,
otherwise , the benefit is calculated as
above , ignoring any partial contribution
towards fuel costs.

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 Income from employment
Example 4:
Miranda (a P11D employee) was supplied
throughout 2015-16 with a petrol-engined
company car for both business and private
use .The car had an emission rating of
164g/km and her employer paid all running
costs. The cost of the fuel supplied for private
motoring was £1,795 .Calculate her taxable
fuel benefit in 2015-16 if :
(a)She contributed nothing towards private fuel

(b)She reimbursed her employer for the cost of

all private fuel
(c) She reimbursed her employer £1,750 towards
the cost of the private fuel. 25
 Income from employment (2)

Solution :
(a)
Emission 95g/km 14%
Each 5g/km addition 13% *
27%
*So 164g/km-95g/km=69/5g/km=13% (rounded down to
the nearest 5g/km if over 95g/km )
27% x £22,100=£5,967
(b) £nil ,since the employer pays for no private fuel
at all.

(c) Miranda’s contribution is less than 100% and

so the taxable benefit is £5,967. 26
 Income from employment
Beneficial loans:
A beneficial loan is one that is granted by an
employer to an employee (or to a relative of
the employee ) either interest free or at a low
rate of interest . The employee is taxed on the
difference between the interest actually
payable to the employer and the interest that
would have been payable at the official rate .
Note:
No assessable benefit arises if the total amount
outstanding on all beneficial loans made to an
employee does not exceed £10,000 at any
time during the tax year.
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 Income from employment
Example 5:
Adam has the following four loans from his
employer:
(a)A £36,000 loan at 1.5% p.a. interest to enable
Adam to buy his own home.
(b)An interest –free season ticket loan of £ 2,000.

(c) A £ 2,400 personal loan at 2.5% p.a. interest.

(d)A £ 6,000 loan to buy equipment for use in his

employment.
The full amount of each loan outstanding at 6
April 2015 and no repayments were made
during 2015-16 . Calculate Adam’s taxable
benefit in 2015-16 ( assuming an official rate of
interest of 3.% per annum). 28
 Income from employment
Solution
The £6,000 loan is a qualifying loan and is
ignored . The remaining loans total more than
£ 10,000 and so give rise to taxable benefit.
The amount assessed to tax is :
£
£ 36,000 x (3%-1.5%) 540
£ 2,000 x 3% 60
£ 2,400 x (3%-2.5%) 12
612

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 Income from employment
Beneficial loans which vary during the
year:
 If the amount of the beneficial loan does vary during
the year ,the taxable benefit can be calculated in
one of two ways:
a) Normal method: the amount of the loan at the start
of the tax year(or when the loan began, if later) and
at the end of the tax year(or when the loan ended ,if
earlier)are averaged and multiplied by the average
official rate for the year. If the loan began or ended
during the year, the result of this calculation is
multiplied by the number of months for which the
loan was outstanding in the year and divided by 12.
Interest actually paid by the employee (if any) is then
subtracted ,giving the taxable benefit.
30
 Income from employment
Beneficial loans which vary during
the year:
b) Alternative method: interest at the official
rate is calculated precisely on the day-to-day
outstanding balance.

Interest actually paid by the employee (if any) is then

subtracted ,giving the taxable benefit.

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 EMPLOYMENT Employees’Ear
INCOME ning >=8,500
ALL
DIRECTORS
Key benefits
ASSESED HIGHER Car
ON ALL
PAID Private Fuel
BENEFITS EMPLOYEES
EMPLOYEE Loans
S Assets for
Personal Use
Gifts of Assets
 Pension
contribution
 Parking
 Vouchers
space
 Living EXEMP  Mobile
Accommodation T phone
 Canteen
 Reduce benefit
 Childcare
by employee  Job-related
contribution(ex GENERAL
RULES accommoda
cept private
tion
fuel)
 Time apportion 32