TAX LECTURE 3
OUTCOMES
• Employed or self-employed?
• Basis of assessment for an employee
• Termination payments
• National Insurance Contributions
• PAYE system
• Benefits-in-kind
• Taxable values of benefits-in-kind
• Share Incentive Schemes
• Employment expenses and pension contributions
• Complete a self-assessment tax return
EMPLOYMENT INCOME
Wages, salaries, bonuses, commissions, termination payments, benefits in kind, pensions
o Includes tips even though not paid by the employer
Retirement pension
Job seeker’s allowance
EMPLOYMENT AND SELF-EMPLOYMENT handbook p. 45
Self-employed people have certain tax advantages compared to employees
Wider range of expenses
Pay tax later
Not a choice, but a matter of fact
Contract of service = employee, or
Contract for services = self-employed
CASE LAW
Personal service
Mutuality of obligation
Right of control
Right of substitution and engagement of helpers
Provision of own equipment
Financial risk
Opportunity to profit
Employee -type benefits
Mutual intention
Balance of evidence
Hall v Lorimer
The UBER case
Historically, Uber treated its drivers as self-employed individuals who contracted directly with
the passenger
o Uber regarded its role as a technology provider
Two Uber drivers argued that they were ‘workers’ and therefore entitled to sick leave, national
minimum wage etc
, The Supreme Court decided that the drivers were working for Uber. Five factors influenced the
Court’s decision
o Uber sets the fare, thereby dictating how much the drivers are paid for the work they do
o The contract terms are imposed by Uber on the drivers
o Once the driver has logged onto the Uber app, there are constraints on the driver’s
ability to accept or reject a ride
o Uber exercises significant control over the way in which the driver provides a service, for
example using a ratings system
o Uber restricts communication between the driver and the passenger to the minimum
necessary
HMRC were not involved in the case. The big question now is whether, in addition to being
‘workers’, the drivers are also ‘employees’ of Uber
TERMINATION PAYMENTS handbook p47
Fully exempt
Payments made on death
Payments made because of injury or disability
Lump sum payments from pension schemes
Fully taxable
Payments to which the employee is contractually entitled.
Also payments in lieu of notice even if not contractual
Partially exempt
Payments made at employer’s discretion, or redundancy payment after loss of employment, are
exempt up to £30,000
NICs for 2022/23
Primary Class 1: paid by employees
Charged on earnings over the earnings threshold (£190pw up to 5 July 2022 and £242pw
afterwards) up to the Upper Earnings limit (£967pw) at 13.25%. 3.25% on earnings over the UEL.
Rates reduced to 12% and 2% from 6th Nov. 2022
Secondary Class 1: paid by employers
Charged on all earnings over the earnings threshold (£175pw) at 15.05%.
Rate reduced to 13.8% from 6 Nov.2022
Class 1A: paid by employers
paid by employers on benefits in kind at 15.05%.
Rate reduced to 13.8% from 6 Nov 2022.
Lecture Example
Jane earns £250 per week during December 2022. Compute the Class 1 contribution paid by:
Jane
12% x (250 – 242) = £0.96
Her employer
13.8% x (250 – 175) = £10.35
Lecture Example
Jill earns £2,000 per month in December 2022. Compute the Class 1 contribution paid by:
a) Jill
OUTCOMES
• Employed or self-employed?
• Basis of assessment for an employee
• Termination payments
• National Insurance Contributions
• PAYE system
• Benefits-in-kind
• Taxable values of benefits-in-kind
• Share Incentive Schemes
• Employment expenses and pension contributions
• Complete a self-assessment tax return
EMPLOYMENT INCOME
Wages, salaries, bonuses, commissions, termination payments, benefits in kind, pensions
o Includes tips even though not paid by the employer
Retirement pension
Job seeker’s allowance
EMPLOYMENT AND SELF-EMPLOYMENT handbook p. 45
Self-employed people have certain tax advantages compared to employees
Wider range of expenses
Pay tax later
Not a choice, but a matter of fact
Contract of service = employee, or
Contract for services = self-employed
CASE LAW
Personal service
Mutuality of obligation
Right of control
Right of substitution and engagement of helpers
Provision of own equipment
Financial risk
Opportunity to profit
Employee -type benefits
Mutual intention
Balance of evidence
Hall v Lorimer
The UBER case
Historically, Uber treated its drivers as self-employed individuals who contracted directly with
the passenger
o Uber regarded its role as a technology provider
Two Uber drivers argued that they were ‘workers’ and therefore entitled to sick leave, national
minimum wage etc
, The Supreme Court decided that the drivers were working for Uber. Five factors influenced the
Court’s decision
o Uber sets the fare, thereby dictating how much the drivers are paid for the work they do
o The contract terms are imposed by Uber on the drivers
o Once the driver has logged onto the Uber app, there are constraints on the driver’s
ability to accept or reject a ride
o Uber exercises significant control over the way in which the driver provides a service, for
example using a ratings system
o Uber restricts communication between the driver and the passenger to the minimum
necessary
HMRC were not involved in the case. The big question now is whether, in addition to being
‘workers’, the drivers are also ‘employees’ of Uber
TERMINATION PAYMENTS handbook p47
Fully exempt
Payments made on death
Payments made because of injury or disability
Lump sum payments from pension schemes
Fully taxable
Payments to which the employee is contractually entitled.
Also payments in lieu of notice even if not contractual
Partially exempt
Payments made at employer’s discretion, or redundancy payment after loss of employment, are
exempt up to £30,000
NICs for 2022/23
Primary Class 1: paid by employees
Charged on earnings over the earnings threshold (£190pw up to 5 July 2022 and £242pw
afterwards) up to the Upper Earnings limit (£967pw) at 13.25%. 3.25% on earnings over the UEL.
Rates reduced to 12% and 2% from 6th Nov. 2022
Secondary Class 1: paid by employers
Charged on all earnings over the earnings threshold (£175pw) at 15.05%.
Rate reduced to 13.8% from 6 Nov.2022
Class 1A: paid by employers
paid by employers on benefits in kind at 15.05%.
Rate reduced to 13.8% from 6 Nov 2022.
Lecture Example
Jane earns £250 per week during December 2022. Compute the Class 1 contribution paid by:
Jane
12% x (250 – 242) = £0.96
Her employer
13.8% x (250 – 175) = £10.35
Lecture Example
Jill earns £2,000 per month in December 2022. Compute the Class 1 contribution paid by:
a) Jill
