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Chapter Three - Employment versus self-employment: - Coggle Diagram
Chapter Three - Employment versus self-employment:
The term employment income or earnings includes:
Salary, bonuses, tips on Commission
Benefits in kind provided by the employer.
Payments made on the termination of employment.
Pension arising from employment.
Employment income is subject in contact and ais taxed as non-saving income at 20%, 40% or 45%
A director earning from the company will be considered to be received on the earliest of the following dates:
The date the director actually receives the income.
The date the director becomes entitled to receive the income.
The date the amount is credited to the director’s current account.
The end of the company's period of account if the amount is determined by that date
The actual time the amount is determined, if after the company’s period of account.
A directors current accounts records the transactions between a director and the company. The transactions include withdrawals made from the company which are not salary or dividends. The types of transactions include:
Cash payments other than salary or dividend
Expenses that the director may have paid for using company phones that are actually for personal use.
Money withdrawn for personal use for example to pay school fees
Contributions to an occupational pension scheme if deducted from the employees pay by the employer. The maximum amount of which an individual can claim relief on in any year as the greater off:
100% of the employees UK relevant earnings chargeable to income tax, capped at £40,000
The basic amount of £3,600
The annual allowance is restricted by £1 for every £2 earned above 150,000 up to maximum restriction of £36,000.
A directors current accounts records the transactions between a director and the company. The transactions include withdrawals made from the company which are not salary or dividends. The types of transactions include:
Cash payments other than salary or dividend
Expenses that the director may have paid for using company phones that are actually for personal use.
Money withdrawn for personal use for example to pay school fees
Subscription to a professional body where memberships of this body is required to enable employee to perform their job. For example, subscription to accounting technicians Ireland.
Donations to charity under payroll deductions scheme. This occurs when employees request that donations are deducted from their gross earnings income tax is charged after the donation has been deducted, therefore the donation reduces the income of which the tax is charged.
Qualifying travel expenses which are expenses an employee must incur in the performing off their job. They do not include commuting to or from their permanent place of employment. If expenses are reimbursed by their employer than tax relief is not available, for example the expenses cannot be deducted from the individual salaries.
Travel expenses - Mileage
An individual may be required to travel to enable them to perform their employment duties. There are three scenarios in relation to travel expenses incurred necessarily in the performance of the duties of employment.
Employee incurs travel expenses and is reimbursed by their employer.
Employers incur travel expenses and is not reimbursed by their employer.
Employee has a company car.
Employee incurs business related travel expenses - Reimbursed by employer:
If an employee is reimbursed for business travelling incurred necessary in the performance of their employment, they must compare the amount reimbursed with the HMRC authorised mileage allowance to determine the tax treatment.
As per HMRC, an employer should use the following approved rates to reimburse employees for allowable business travel:
45p per mile for each of the first 10,000 miles
25p per mile from miles more than 10,000 miles
Exceptions
Expenses incurred by an individual travelling from their home to their permanent place of work are not allowable. The exceptions to this rule our stated below.
Travel costs incurred by a site-based employee. For example, an employee who does not have a set workplace.
Travel costs incurred by employee has been second to temporary place of work and the secondment is due to last less than 24 months.
Employee with a company car - advisory fuel rates
Advisory fuel rates are lower than the previously mentioned approved rate of 45 P/25 pee. This is since is the employer who suffers all the other running costs and wear and tear of the car, rather than the employee.
Advisory fuel rates provide a range of rates based on the engine size and fuel type which can be paid without attracting a tax or National Insurance charge on the employee. The petrol and LBG rates per mile which apply to all journeys are below:
Reimbursement of business miles: if the rate paid per mile of business travel is in line with the previous table, HMRC will accept that their amount is not taxable and no class 1A NIC liability arises.
Payment of private miles: if the employee paid his employer in line with the previous table and all private miles have been identified. HMRC will accept that there is no fuel benefit charge and therefore no class 1A NIC liability.