Tax relief for pension contributionsThe completion of boxes 1 to 4 at the top of page TR4 of the main tax return allows a taxpayer to claim tax relief on pension contributions made in the tax year.Most contributions to registered pension schemes are paid net of basic rate tax relief (via a relief at source scheme), so the only additional relief sought by entry on the tax return is relief at higher rates of tax.For Scottish taxpayers, relief at source is at the Scottish basic rate. From 2017/18 onwards, due to the divergence in the Scottish bands and rates from the rest of the UK, multiple bands need to be extended where pension contributions are paid to relief at source schemes. Scottish tax bands need to be extended for calculating tax on non-savings, non-dividend income. UK tax bands need to be extended for calculating tax on savings and dividend income of Scottish taxpayers. This is discussed further below.Contributions are paid gross to occupational schemes that use a net pay arrangement.For the meaning of a registered pension scheme, relief at source scheme and net pay arrangement, see the Pensions glossary of terms guidance note.The tax relief available for pension contributions is summarised in the Flowchart ― tax relief for contributions to a UK registered pension scheme.Conditions for tax relief to be claimedRelevant UK individualTo obtain tax relief on pension contributions, the scheme member must be a relevant UK individual. This means that the individual must:•have relevant UK earnings chargeable
Annual partiesIntroductionMany employers provide social functions to their staff. Often this will include some sort of annual event, usually taking place in the summer or at Christmas. See also Simon’s Taxes E4.741A. HMRC guidance is at EIM21690.The amounts incurred by the employer in respect of the social function are taxable unless there is an exemption from tax as it is considered a benefit to the employees attending.Exemption for annual parties ― qualifying eventsThere is an exemption from tax and NIC in ITEPA 2003, s 264 where the employer provides employees with a social function and a number of conditions are met:•the function is an annual party•the event is available to all employees in the business, or all employees at one location where the employer has multiple locations•the cost per attendee does not exceed a set amount ― currently £150Although the legislation includes the term ‘annual’, HMRC has not to date expected the employer to hold the same event every year. However, the event should be of an annual nature such as a Christmas party or summer barbecue. Events which, by their nature, are one-off events will not be covered by this exemption. For example, if an employer is having a celebration because it has been in business for 50 years, this would not be classified as annual for the purposes of these provisions.For the treatment of social events which are not annual parties, see the Entertainment ― staff
Utilities, council tax and other bills in accommodationThe payment of an employee’s council tax or utility or other bills is usually linked to the provision of living accommodation to the employee.Whether or not the payment of council tax or utility bills is treated as a taxable benefit depends on whether the reason for the provision makes it an exempt benefit under specific legislation.Payments in respect of gas and electricity made by an employer in relation to employer-provided accommodation are always taxable. However, how and why the benefit is provided to the employee determines both the value of the benefit and reporting requirements.Council tax and utility bills ― exemptionsWhether or not the payment of council tax or utility bills on behalf of the employee constitutes a taxable benefit depends on why the amounts have been paid.If the payment of council tax does not fall into one of the exemptions below then the full amount is taxable. The section on ‘reporting requirements’ below sets out how it should be reported and taxed.Exemptions applicable to council tax or utility billsThe payment of council tax or utility bills (specifically council tax, water charges or sewerage charges) is not taxable if it is provided in connection with living accommodation which is exempt from tax either as job-related accommodation or due to a security threat; this is confirmed by HMRC guidance at EIM11332. Broadly, there are two exemptions:•job-related accommodation ― where either the accommodation is necessary for the proper performance of the
Homeworking and other expenses and coronavirus (COVID-19)Following a sudden unprecedented move for people to work from home temporarily during the coronavirus pandemic, many employers, employees and individuals had queries around the income tax and NIC treatment in relation to costs incurred in relation to working from home.Equipment provided in the homeIn addition to expenses working from home, expenses related to coronavirus such as the provision of test and PPE have been common. Legislation, regulations and guidance have been put in place to assist with these issues.Where an employer provides an employee with equipment to carry out the duties of employment, there should be no income tax, NIC or reporting requirements. This exemption applies as long as the employee:•is provided with the equipment solely to enable the performance of duties•has only insignificant private use of the equipment providedITEPA 2003, s 316This might include, for example, computers, desks, chairs, stationery and so on for the home, which the employee might usually use in the workplace but needs in order to be able to work from home on a temporary basis. Home alterations are specifically excluded and would therefore be subject to tax and NIC in full.There is some room for interpretation here on whether a temporary requirement to work from home meets the requirement of being ‘provided with the equipment solely to enable the performance of duties’. In addition, where desks, chairs and computer screens are provided at home, the employee may make more than
Entertainment ― staffIntroductionIf an employer provides any staff entertainment for their employees, a taxable benefit may arise on that provision under the Benefits Code. See Simon’s Taxes E4.601. Staff entertainment could be any function, event, party or meal which an employer provides to an employee. HMRC guidance starts at EIM32615. Entertaining eventsThe first thing to consider is whether the expenditure incurred by the employer is exempt from tax anywhere else in the tax legislation. This may be because the event is a qualifying annual party, the meal is covered by travel and subsistence rules, or the event is a training event. It is also worth considering whether the entertainment is trivial in nature and can be exempted under the trivial benefits legislation. This could be the case where there is a small office
Geared growth arrangements ― where are we now?There are a number of equity schemes which companies offer to their staff to drive performance and to reward loyalty which are not government-supported. These are known by a variety of names, including: growth, flowering or freezer schemes and joint ownership arrangements. In the main they are used to deliver equity in a way which falls within the capital gains tax (CGT) regime rather than participants being subject to higher rates of income tax and NIC.Very often companies will look to implement these types of scheme where traditional tax-advantaged employee share plans such as Enterprise Management Incentive schemes (EMI) ( see the Why use an EMI scheme? guidance note) or Company Share Option Schemes (CSOP) (see the Why use a company share option plan (CSOP)? guidance note guidance note) are not available. For example companies may be too large to offer EMI or have balance sheet assets in excess of the relevant limit. With CSOP, whilst there is no longer any prior approvals process with HMRC, the need for companies to meet various tests in relation to both their share capital and the design of the scheme, coupled with the relatively modest limit in the value of shares under CSOP option, may act as a deterrent.These alternative schemes have come under HMRC scrutiny as part of the drive to curb anti-avoidance in relation to employee reward. In June 2010 the coalition government announced that arrangements involving geared growth would be subject to
Fuel ― company carsIntroductionWhen an employer provides fuel for a company car, a taxable benefit is likely to arise. The taxable benefit is specifically known as the fuel benefit charge. The fuel benefit charge arises in addition to the company car taxable benefit, see the Company cars guidance note. Detailed guidance on each of the following sections to cover specific circumstances is available at Simon’s Taxes E4.629 and from HMRC at EIM25500 onwards.The definition of ‘provided’ stated in the legislation is very broad. Fuel is treated as having been provided if any of the following applies:•any liability in respect of the provision of fuel for the car is paid directly by the employer (eg by settlement of an invoice)•a non-cash voucher or credit token (such as a fuel card) is used to obtain fuel•a non-cash voucher or credit token is used to obtain money to pay for fuel, or•the employer reimburses the employee any sum for the cost of fuelITEPA 2003, s 149(3)HMRC provides an Expenses and benefits from employment toolkit, which is a guide for employers and their advisers on the risks associated with the end of year reporting and P11Ds. The toolkit is updated annually.As with any other kind of employment reward, if the fuel is provided by a third party rather than by the employer, it is worth considering whether the disguised remuneration provisions in ITEPA 2003, ss
TelephonesMobile phonesExemption for provision of mobile phoneThe provision of mobile phones to employees is a common benefit. There is a general exemption from tax and NIC. In some circumstances, a tax and NIC liability may arise. The exemption in ITEPA 2003, s 319 covers the following:•the provision of one mobile phone to an employee (the employer must retain ownership of the mobile phone). In this context, ‘mobile phone’ can include a physical phone with a sim, just a sim, or multiple items for different connections as long as the connections relate onto to one phone number•the line rental and the cost of all calls associated with that mobile phoneThe exemption covers any amount of private use. For practicality, employers are likely to limit use outside the limits of the phone’s regular contract cost to limit their cost, but this does not affect the PAYE position.HMRC guidance is at EIM21779. See more in Simon’s Taxes E4.779AWhere an employee is required to use a mobile phone for business calls, then the cost of the call is allowable as a business expense under the general expense rule, see the Business expenses ― general rule guidance note. This will usually be in the form of a claim made by the employee for the cost of the business calls and a reimbursement. What is a mobile phone?The development of mobile technology has meant that HMRC has had to give guidance on what it accepts as a mobile phone. HMRC accepts that ‘smartphones’
Valuing the estateOverviewWhen the personal representatives (or their professional advisers) have been through the deceased’s paperwork and have identified the institutions that may hold assets on behalf of the deceased, the next stage is to write to those institutions to notify them of the death, and to obtain details and asset values as at the date of death. There may also be liabilities of the estate which also must be valued as at the date of death. This guidance note will identify the information that should be requested from the institutions and provide sample letters.Prior to reading this guidance note, reference should be made to the IHT principles of valuation set out in detail in the Valuation of property guidance note. The personal representatives must identify the open market value of the assets at all times, as defined in IHTA 1984, s 160. This is the price the asset might reasonably be expected to fetch if sold in the open market immediately before the deceased died. The basis for valuation may be modified in certain circumstances, eg where related property is found. In addition, a discount may be applied to the open market value where an asset is held jointly with another. Personal representatives should be wary where assets are held by the deceased jointly with another to identify as to what percentage he owns, as it may not be 50%. Caution must be exercised when dealing with bank accounts owned by the deceased in which a second person
PAYE Settlement Agreements (PSA) ― overviewPSAs are optional arrangements that allow employers to include minor or irregular benefits and expenses in a separate return instead of reporting them in form P11D and accounting for Class 1 or Class 1A NIC. Why use a PSA?PSAs are popular with employers because they avoid the requirement to complete P11Ds for certain benefits (potentially removing the requirement for P11Ds to be prepared for some employees depending on the benefits provided) and also mean the employee does not bear the tax and NIC cost of the benefit. For example, gifts provided to employees or the provision of staff entertainment are generally liable to tax / NIC (see the Gifts and Entertainment ― staff guidance notes) but are provided by employers as a perk.The popularity of such gifts and events with the employees would however be diminished if they had to pay tax on the benefit. The PSA passes the tax and NIC liability on these benefits to the employer so the employee receives the benefit free of any tax or NIC.Using a PSA can save significant administrative costs as there is no need to report minor and incidental benefits individually; however, the tax and NIC cost is significant, so it will be necessary for the employer to balance the cost of tax and NIC versus time spent on administration.See Example 1.Why might an employer not want to put a PSA in place?A PSA is expensive for the employer as it must pay grossed-up tax
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