Question

Case Study: 4

To fulfill the urgent requirement of security personal, Bristol Chocolates Factory gave a vacancy requirement to a recruitment agency. After a couple of interviews, the factory management decided to appoint Mr. Harry as their security guard. Mr. Harry agreed to accept this position at a monthly payment of £3,000 with an annual deduction of £6,000 towards occupational pension scheme. As the nature of his work is to provide round the clock security, he requested the management to provide him accommodation within the factory premises along with free electricity, water, gas and heating facilities to his accommodation. Management has agreed to provide him the accommodation within the factory premises and his requested of added ancillary facilities at a monthly cost of £50 deducted from his salary rather than free. Such accommodation has an annual value of £2,000 and cost of this accommodation is £85,000. In the current tax year 2018/19, it costed company an annual payment of £250 towards electricity, £300 towards water supply, £150 towards gas bills and 1,500 towards heating charges. An additional cost of

You are required to calculate Mr. Harry’s taxable employment income and tax liability as per UK Tax Laws 2018/19.

Answer 1

Taxable employment income of Mr Harry.

Salary Income 3000* 12 36,000

Add: Perquisites :

Electricity Charges 250

Water charges 300

Gas Bill 150

Heating Charges 1500

Total 2200

Less: recovered 50*12 600

Taxable 1600

Value of Accomodation 2000 + 250 2250

Total Gross Income 39850

Less: Contribution towards pension scheme 6000

taxable Income 33850

Tax rate :

Upto 11,850 0 0

11,851 to 46,350 20% of 22000 4400

Tax Payable 4400

Working Notes:

1.

You can get tax relief on private pension contributions worth up to 100% of your annual earnings.

You get the tax relief automatically if your:

• employer takes workplace pension contributions out of your pay before deducting Income Tax
• rate of Income Tax is 20% - your pension provider will claim it as tax relief and add it to your pension pot (‘relief at source’)

2. Valuation of Accomodation :

Accommodation Costing £75,000 or Less: the Basic Charge

If the cost of the living accommodation is not more than £75,000, the cash equivalent of the benefit is the rental value of the accommodation, less any amount made good by the employee.

Accommodation Costing More than £75,000 to Provide: Additional Charge

If the cost of the accommodation exceeds £75,000, an additional charge arises equal to the official rate of interest, at the rate prescribed for beneficial loans, on the excess of the cost of providing the accommodation over £75,000.

The official rate of interest used is that at the beginning of the year. The official rate of interest has been set at 2.50% since 6 April 2017.