Employment Income

Living accommodation

* if the accom provided is job-related then no taxable benefits arise. Exam will say if it’s job-related or not. Job-related when:

  • it’s necessary for the employee to reside in the accom so that they can properly perform the duties of the employment e.g. caretaker on premises

  • accom is provided for better performance and is customary for it to be provided

  • there’s a special threat to the employee’s security and the accom provided is part of security arrangements

Taxable benefits can arise when:

  • If owned by the employer, employee is taxed at the “annual value” of it.

  • If rented by the employer, taxed on the greater of the rent paid by the employer and the accom’s annual value.

Basically it’s reduced by any contribution made by the employee if made by 6 July the following tax year.

  • Accom for the employer > £75,000 is seen as expensive which increases the taxable benefits calculated by applying 3.75% (same as the rate of interest used in beneficial loan calcs) to the amount by which the cost of the accom exceeds £75k

  • cost of providing accom generally = to the purchase price of the property + the cost of any improvements made before the start of the tax year - any capital contribution made by the employee

  • but if the property was acquired more than 6 years before it was made available to the employee, the cost of providing accom is taken to be its market value on the date it was first occupied by the employee + the cost of any improvements made since that date before the start of the tax year - any capital contribution made by the employee

Assets & Furniture loaned for private use are taxed each year on 20% of its mv on the date of the loan to the employee. If sold or given to them, tax is also charged on the greater of:

  • the mv of the asset when sold or given

  • the mv when first loaned - the amounts that have already been charged to tax during the period of the loan

Any amount paid for the asset by the employee is subtracted when calculating the tax benefit

For primary support (ancillary) services connected w/ the accom, employee is taxed on the cost to the employee of providing them, including items such as heating, lighting, repairs, maintenance, and cleaning.

  • taxable benefit is reduced by any contribution made by the employee towards their cost

  • if accom is job-related, there’s no tax charge in relation to council tax or water/sewage charges paid by the employer

  • Taxable benefit with regard to all other ancillary services cannot exceed 10% of the employee’s net earnings for the year, w/ NE being defined as the total earnings (apart from ancillary services) - allowable expenses

Cars provided for private use (BIK)

Employee is taxed on the provision of a motor car unless the car is totally unavailable for the employee’s private use. Taxable benefit based on the list price of the car when new and calculated as:

  • the price of the car in the sum of the list price when new, incl standard accessories + the cost of optional accessories (other than mobile telephones) fitted to the car before it is made available to the employee + the cost of these accessories costing £100+ and fitted to the car after it’s made available to the employee. Accessibility accessories and security features are excluded.

  • The taxable benefit is based upon the price of the car - any capital contribution up to £5k towards the car’s cost.

For car fuel

  • a separate taxable benefit if the employer provides the employee with fuel for private motoring. Calculated by applying hte same % used in the calc of the car benefit to a fixed amt set by the government for that tax year (£28.2k). NOT reduced by any contribution made by the employee towards this cost.

  • tax charge reduced proportionately if not made available to the employee for the whole tax year and is normally reduced if the employee receives fuel for private use for only part of the year

Beneficial Loans

An employee related loan granted either IR free or that of which is less than 3.75% (the official rate).

  • Employees are taxed on the diff between the IR payable to the employer and the IR that would have been payable at the official rate

  • Loans made on the same terms as those made to the general public aren’t treated as beenficial loans witht he same also applying to those that qualify for tax relief

  • No taxable benefit if the total amount outstanding on all beneficial loans made to an employee does not exceed £10k at any time during the tax year