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Business Tax 3: Income from Employment Cheat Sheet (DRAFT) by

Business Tax 3 - Income from Employment - UK.

This is a draft cheat sheet. It is a work in progress and is not finished yet.

Basis of Employment Income Assessment

Employment income is taxed on the earlier of entitl­ement or receipt. For directors, the date recorded in company records also counts.

Approved HMRC Mileage Rates (own vehicle)

First Year 10,000 miles/year
Cars/vans 45p, motorc­ycles 24p, bicycles 20p.
 
Over 10,000 miles
Cars/vans 25p, motorc­ycles 24p, bicycles 20p.
 
Exceeding these rates is taxed as a benefit; below is deduct­ible.

Travel to and from Work

Travel to work is usually not an allowed expense. Exceptions include:
• No fixed office (on-site workers).
• Business trips starting from home.
• Temporary secondment (max 24 months). Subsis­tence costs are also allowed in these cases.

Benefits in Kind (BIK)

BIK
are non-cash benefits provided by employers.
The taxable amount is generally the additional cost to the employer for providing the benefit.
 
Special rules apply to:
• Living accomm­oda­tion.
• Loaned assets.
• Services related to accomm­oda­tion.
• Cars and fuel for private use.
• Vans for private use.
• Beneficial loans.
If the employee pays the same price as the public (a ‘fair bargain’), the benefit is not taxable.
 

Tax Year

6th April to 5th April.

Deductible Expenses

Deductible expenses (or compan­y-paid and tax-free):
• Travel to clients (not commut­ing).
• Meals when working away.
• Profes­sional member­ships.
It must be wholly for work purposes.
 
Expenses not taxed if wholly, exclus­ively, and necess­arily for work duties include:
• Meal allowance (£5-£2­5/day).
• Profes­sional subscr­ipt­ions.
• Pension contri­but­ions.
• Payroll charity donations.
• Travel­/su­bsi­stence.
• Client entert­ainment (if employee pays).
Must be directly tied to employment duties.

Entert­aining Clients

Client entert­ainment is not usually allowable. However, if reimbursed or given an entert­ainment allowance, it’s tax-de­duc­tible for the employee (different rules apply to the company).

PAYE System - Pay As You Earn

Deducts tax (20% / 40% / 45%) and National Insurance (c8%) from pay before you receive it.
 
Employers calculate and pay these to HMRC. Applies to all employment income (wages, bonuses, benefits), factored into your tax code.
 

What comes under Employment Income?

• Salary, wages, bonuses, commis­sions, fees.
• Expense allowa­nces, pensions from employ­ment.
• Benefits in kind, termin­ation payments.
• Jobsee­ker’s allowance, statutory matern­ity­/pa­ternity pay.
• Waiters’ tips.

Non-ta­xable Employment Income

Exempt from tax.
• Trivial benefits (typically £50 or less).
• Free/s­ubs­idised staff canteen.
• Workplace parking.
• Contri­butions to home-w­orking costs.
• Approved mileage allowa­nces.
• Incidental overnight expenses.
• Reasonable personal gifts (e.g., wedding gifts).
• Work-r­elated training (up to £15,480).
• One mobile phone.
• Job-re­lated accomm­oda­tion.
• Employer pension contri­but­ions.
• Employee parties (up to £150 per head; exceeding this makes the entire amount taxable).

Trivial Benefits in Kind

Trivial Benefits in Kind are exempt if they:
• Cost less than £50,
• Are not cash or cash-c­onv­ertible vouchers,
• Are not rewards for employ­ment.
 
Directors of close companies have a £300 annual limit. If the benefit exceeds £50, the entire amount becomes taxable.