Taxation of employment income - HMRC updates guidance in Employment Income Manual

The manner in which HMRC interprets and applies the provisions of the Income Tax (Earnings and Pensions) Act 2003 is explained in great detail in the Employment Income Manual. This interpretive manual is written specifically for tax inspectors but most of it is also made available to employers and practitioners on HMRC's website. The manual is updated periodically and a number of changes have just been announced.

Among the changes and clarifications are the following:

• A new class of employee has been added to the list of those who qualify under the "better performance" exemption from a tax charge on the provision of living accommodation, namely pre-registration house officers. Student doctors, working in hospital during their final year of clinical training, must be provided with living accommodation and therefore meet the qualifying conditions for exemption.
  
  
• If an employee makes a payment towards the provision of a company car, the payment will not be treated as a "capital contribution" that reduces the list price of the car if the agreement specifies a specific amount that will be reimbursed. The payment is a loan, not a capital contribution.
  
  
• An employment-related loan made to an employee who comes to work in the UK falls within scope of the beneficial loans rules if:
  
  
  • the loan is made at a time when the employee's earnings are already chargeable to UK income tax as employment income, or
    
    
  • the loan is made in contemplation of the employee working or living in the UK, or
    
    
  • the employee, at a time when the employee's earnings are chargeable to UK income tax as employment income, in any way facilitates the continuation of a loan which was already in existence before the employee came to work in the UK.
    
    

• A loan made by an employee benefit trust is "made" by the employer if the employer provides money to fund the trust and, as a result, falls within the beneficial loan rules as if it were made directly by the employer.
  
  
• Where the interest on a loan is capitalized by being incorporated into the outstanding capital of the loan, the capitalisation is not treated as being a payment by the employee of the interest, thereby avoiding a tax charge under the beneficial loan rules.
  
  
• Employees who participate in activities for the purpose of continuing professional development (CPD) are unable to claim tax relief on their costs, even if participation in such activities is compulsory and failure to do so may result in loss of professional qualifications or employment.

Four appendices have also been added to the Employment Income Manual, all of which will be of interest to employers involved with international employment. They cover (1) employees on secondment to the UK, (2) earnings for duties performed in the UK, (3) dual contract arrangements, and (4) tax equalisation.

...UK Payroll News - Latest

Further information:
Recent updates to the Employment Income Manual

The UK Payroll News is sponsored by HRD & Payroll Solutions

Discuss this news item in the PayPerShop Forum