Exercise to be completed in advance of the seminar based on Unit 3

1. List the main criteria for distinguishing between an employee and a self-employed individual.
See Melville p90

2. List 5 tax-free benefits

See Melville p93

3. Give an example of a termination payment which is (i) fully exempt (ii) fully taxable (iii)
partially taxable.
See Melville p98

4. The expense has to be wholly, exclusively and necessarily incurred in the performance of
the duties of the employment.
5. Harry is an employee of Busnews Ltd He travelled 12,000 miles on business during 2022/23.
His employer paid him 35p a mile. Advise Harry whether he is entitled to claim any relief in
his self-assessment.

Mileage allowance 12,000 x 35p £4,200

Official mileage rates:

10,000 x 45p 4,500

2,000 x 25p 500
£5,000

Harry’s mileage allowance is £800 less than the approved amount.

Therefore, the £800 will be subtracted from his salary when computing his taxable income.

What if the employer paid 45p a mile for the whole 12,000 miles?

12,000 x 45p = £5,400. £400 would be added to his salary when computing his tax

6.Personal allowance 12,570

Subscription 100
Benefit in kind (400)
12,270

Code 1227L

7. The limit for staff parties is £150 a head per annum. So it looks as if the total of £165
exceeds the limit with the consequence that the entire amount is a taxable benefit. However,
it is possible to treat the summer party as a trivial benefit (less than £50) which means that
the Christmas party at £120 is under the limit. The conclusion therefore is that there is no
taxable benefit.

8. The High Income Child Benefit Charge applies. Your friend must notify HMRC that he is
within the charge and will be required to file a self-assessment return. The effect of the
charge will be to recover one half of the child benefit.
Questions to be completed during the seminar based on Unit 3

Q1

Page 2 Put ‘X’ in the Yes box and 1 in the Number box for Q1
Put ‘X’ in the No box for Q2 to Q9
Yes for the last Q.

Page 3 Put 1,400 in box 2.

Page 4 Put 16 in box 5 and in box 6

Page 8 Put ‘X’ in box 21 and sign and date the form

E1 Put 48,000 in box 1; 11,159 in box 2; 120/M3 in box 4; Middlesex University in box 5; 800 in box
11.
Q2
What is the taxable amount in 2022/23 for Ronald, who earns £64,000 a year, of being provided
with the following benefits:

(1) a petrol-engined company car (2-litre) available for private use, first registered in July 2018
with a list price of £12,000 and a CO 2 emissions factor of 105g/km. The relevant percentage is
26%.

26% x £12,000 = £3,120

NB in the exam the relevant percentage would be given

(2) a rent-free house bought by the employer in June 2019 for £120,000. Rateable value is
£1,200. The official rate of interest at the start of 2022/23 was 2.00% ).

Rateable value 1,200

120,000-75,000 x 2% 900

Total 2,100

(3) an interest-free loan of £11,000 outstanding for the whole of the year (assume an average
official rate of 2.00%).

£11,000 x 2.00% = £220

What if the loan had been £9,000? 0 because loans under £10,000 are exempt

(4) a music system costing £2,000 for use at home.

Assuming that the music system is on loan, £2,000 x 20% = £400

If the asset was given to the employee, the taxable benefit would be £2,000.

(5) a mobile phone; rental £16 month and private calls paid for by the company.

Nil, provided only one phone

(6) A contribution of 5% of his salary to a personal pension scheme

Nil
Q3

Payments which qualify for the £30,000 exemption

Statutory redundancy pay £2,000

Enhanced redundancy pay £7,000

Ex gratia termination payment £15,000

Payments which are taxable in full

Payment in lieu of notice £9,000

The payment in lieu of notice is taxable under normal rules, despite the fact that there is no
contractual right.

The remaining payments (£2,000+£7,000+£15,000) qualify for the £30,000 exemption so are
fully exempt.
Questions to be completed after the seminar based on Unit 3

Question 1 Jeter Ltd

Answer must be in letter format and include the following points:

1. Cash equivalent of the loan is computed using the official rate of interest. £36,000 x
2.00% = £720
If the loan was £10,000 or less, no taxable benefit would arise.
2. Only one mobile phone may be tax-free.
3. The computer is a taxable benefit under normal employment income rules. For
example, if the computer cost £2,000, the taxable benefit would be £2,000 x 20% =
£400. However if the computer was provided for business use, there would be no
taxable benefit, even if there was incidental private use.
4. Explain the rules for taxing company cars, based on C02 emissions, and the
treatment of fuel for private use indicating that it is unlikely that the latter is tax
efficient. Give an example of computation using the percentage given.
5. Company’s contribution is not taxable on Julianna.

Question 2 Elspeth

Explanations based on following

1. 44,500 x 30% = £13,350

2. Rateable value 3,400

(320,000-75,000) x 2% 4,900
£8,300

3. 30,000 x 2% = £600
4. tax free
5. £3,000 x 20% = £600
6. tax-free
7. tax-free

NB the question asks for explanations not just numbers!

(b)
Taxable benefit is 30% x £25,300 = £7,590
tax at 40% = £3,036

Economic benefit
£500
Clearly not tax efficient!
Question 3

Zander
The main criteria are:
1. Control.
The more control that the person who is paying for the work has over the person who is
doing the work, the more likely it is that a contract of service exists. The position here is
not clear-cut. While the club’s control matters such as the number of hours worked,
Zander controls the actual selection of music to be played.

2. Financial Risk.
Employees do not usually risk their own capital in the business for which they work. In
this case Zander clearly has not invested in any of the businesses and if he receives
cash then there is no financial risk. However, when he receives a cheque and the
cheque bounces, he does suffer the financial risk that would not normally apply to an
employee.

3. Equipment.
In general employees do not provide their own equipment but self-employed people do.
Again the position is not clear-cut. The club provides most of the equipment. In fact it
would be totally impractical for Zander to carry with him a platform and a sound
synthesiser.

4. Work performance and correction.

Employees are usually expected to do their work themselves. Self-employed people
often delegate their work to staff. The fact that Zander can send a substitute points to
him being self-employed. However, if the reality is that a substitute would not be
accepted then the clause in the contract does not determine the issue.

5. Holidays and sickness.

Employees are likely to received holiday pay and sick pay. There is no information
about holidays and sickness.

6. Exclusivity.
In general employees work for a single employer. There is no exclusivity in Zander’s
arrangements. Nothing prevents him from taking on a number of engagements.
However, there could still be an employment situation if there are a series of successful
employments.

7. Mutuality of obligation
The minimum obligations that are necessary for a contract of service are the obligation
on the part of the worker to give personal service and the obligation on the part of the
engager to pay the worker for that service. An employment contract will often also
indicate that the engager will provide work for the duration of the contract during the
agreed working hours.

8. Mutual intention
The intention of both parties can be decisive where the factors pointing to employment
and to self-employment are evenly balanced.
Other factors which point to there being an employment with ‘Heaven’s Gate’ are the fact
that he is clearly an integral part of the organisation and seems to be viewed as an
employee.

(b) An answer in terms of being an employee or as self-employed would be acceptable

based on the information given. It is not clear either way which is correct. Reference
should be made to the case of Hall v Lorimer where it was held that a vision-mixer was
self-employed rather than holding a series of employments.

(c) The following information would be needed in order to give advice:

1. The extent of Zander’s integration into ‘Heaven’s Gate’ organisation. In particular

does he receive holiday and sickness pay, does he get invited to employees
functions etc?

2. What is the nature of his business organisation? Does he prepare accounts? Does
he send out invoices, is he registered for VAT, has he registered as self-employed
with HMRC, is he paying Class 2 NICs. Has he submitted self-assessment returns,
in other words does he have the trappings of someone who is in business on his
own account?

3. How genuine is the substitution clause? Would a club be willing to accept a

substitute?