September 2nd, 2011
Tax free benefits
- First-aid and medical treatment in the event of an accident at work
- Annual health screening and medicals, which also extend to cover for retiring employees
- VDU users may also receive eye tests and corrective treatment
- The cost of insurance and medical treatment when working outside the UK
- Health insurance
- General medical treatments
The cost of providing medical cover is not generally taxable as a benefit for an employee after retirement. However, a payment in connection with an unapproved retirement benefits scheme or a pension is, so some care is required in documenting the agreement.
August 2nd, 2011
Many expenses and benefits must be reported to the Taxman on forms P11D and P9D at the end of the tax year which is the 5 April.
It’s important to choose correctly between forms P11D and P9D for each employee. The form to use depends on the employee’s earnings and on whether they’re a director of your company.
Employees earning £8,500 or more a year – form P11D
Use form P11D to report expenses and benefits provided to an employee earning £8,500 or more per year; but see below for what to include when looking at the £8,500 threshold.
Employees earning less than £8,500 – form P9D
Use form P9D to report expenses and benefits provided to employees earning at a rate of less than £8,500 per year again see below for what to include when looking at the £8,500 threshold.
What the £8,500 threshold includes
The £8,500 threshold doesn’t only include wages or salary that you pay the employee. You must also include the value of the expenses and benefits they receive from you. You will need to work out what benefits would have to be included if their earnings were above £8,500, then add this notional amount to see if the threshold is exceeded.
The £8,500 operates on a pro rata basis if the employee only works for part of the year. For example, if an employee only works for six months of the year then you’ll need to use a form P11D if their earnings in that period are £4,250 or more.
Company directors – usually form P11D
Use form P11D for almost all company directors. Only use form P9D if all of the following apply:
1. they earn at a rate of less than £8,500 per year, and
2. they do NOT own or can control more than five per cent of its ordinary share capital and
3. they are a full-time working director
July 28th, 2011
Use of home as an office
Many people find themselves working from home, either as an employee dividing their working life between their employer’s office and working from home or the self employed using their home as the principle place of business.
In either case working at home ultimately increases some of the household costs and it’s not unreasonable to consider that the increase is largely the result of the employment or the business.
HMRC recognize the legitimacy of making such a claim and provided that you have set aside a fixed area in the house for work based activities then you will be able to claim a tax deduction to reflect these additional costs.
You do not need to dedicate an entire room for business, but there ought to be at least some fixed area within one room that is set aside for business or work based activities.
There is a general principle that tax deductible expenses should only occur because of the business itself, the term wholly and exclusively for the purpose of the business is often quoted, but in practice this is often very difficult when looking at household expenditure.
HM Revenue and Customs also recognize this difficulty and have introduced a flat £3 per week (£156 per annum) that can be claimed; this is often a practical solution to apply in a majority of cases.
But, if you are running a business and your home in the principle place of business, then the additional costs can be much higher.
For example you may have set aside an entire room as an office, even built a room in the loft or use the garage to store materials.
HMRC don’t offer a higher flat rate to reflect these circumstances but do permit a more specific calculation based on the proportion of the home used for business purposes.
The calculation is not difficult but can be time consuming.
The starting point is to add up the variable costs incurred in the year, this would include gas, electricity, heating oil, mortgage interest or rent, council tax and buildings insurance.
If you identify any costs that are specifically business they should be claimed in full and therefore excluded from the calculation, as should any costs that are specifically domestic.
It is worth explaining that some costs are of a capital nature and you must be careful when trying to include capital costs such as loft conversions, building an office extension or converting the garage in the claim for tax relief.
Remember that normally any gain in the value of your main home is tax free; and you may jeopardize that exemption if you start including capital costs. You may also create a taxable benefit in kind if your employer (or own company) pays for the capital cost.
One other factor you may wish to consider – your local authority may consider your property partly as business premises where large areas are specifically set aside and assess the property partially to business rates – note that business rates are much higher than council tax!
Once you have established the costs to be included the next stage is to calculate the proportion of the house that is used for business purposes. The most obvious way to do this is calculate the total floor area and divide that by the floor area used by the business to establish a proportion for business use.
Once you have calculated the proportion it only needs to be reassessed when circumstances change.
Apply the proportion to the variable costs established above and add any specific business costs to determine the Use of Home.
July 28th, 2011
Work related training:
If an employer pays for staff training, or reimburses an employee training costs, any benefit to the employee is not subject to tax.
An employee is generally unable to claim training costs as deduction for their own tax if the employer does not reimburse his costs.
Recent case law indicates that training costs will be deductible in the employee’s hands if training is part and parcel of the employee’s job specification.
The term “work-related” is defined very widely; it can include anything from a first aid course to a motivational team building activity course.
Other (non work related) training costs:
Training not related to the employees’ duties are taxable as benefits in kind for higher paid employees or taxable as earnings if employer reimburses employee (all employees).