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PAYE & NI Your Job

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Make Sure Your PAYE Code Is Correct

Pay As You Earn (PAYE) is at best an inexact science, and many people can go for years paying too much (or, perhaps more worryingly, too little) tax.

PAYE aims to see that over the course of a year, approximately the right amount of tax is deducted from your earnings. This is done by the issue of one, or sometimes a series of tax codes, which are used by your employer to calculate the tax to be deducted from your earnings each week or month. Unfortunately, many employees have incorrect tax codes. They may have been given a penalty code for failing to file tax returns, or they may not have notified the tax office of changes in their circumstances that would affect their tax position, such as changing jobs and losing the benefit of a company car, or they have started investing in a personal pension plan.

It is important that we check your PAYE code now, because it is much easier to rectify mistakes before the tax year ends.

Your Remuneration Package

An attractive remuneration package can include any of the following:

• salary
• reimbursement of expenses
• more generous expenses - business travel in first or business class, or a better quality hotel on business trips
• bonus schemes and profit related pay
• share incentive arrangements
• pension provisions
• life assurance and/or health care
• choice of a company car or additional salary and re-imbursement of car expenses for business travel in your own car
• mobile phone
• use of a computer at home and contributions to the additional costs of working at home
• other benefits in kind including, for example, an annual function costing not more than £150 per head, or long service awards

Of course, negotiating the appropriate package is a matter for you and your employer, but you should seek our advice to ensure that your overall package is as tax and NI efficient as possible.

Company Cars

The company car continues to be an important part of the remuneration package for many employees despite the increases in the taxable benefit rates both current and intended. There are factors beyond tax cost which mean a company car remains attractive to many - peace of mind over the financial aspects of car ownership, for example.

Tax is charged on the provision of the car and on the provision of fuel by employers for private mileage. Employers pay Class 1A NICs at 12.8% on the same amount. The amount on which tax and Class 1A NICs are paid in respect of a company car depends on a number of factors. Essentially, the amount charged is calculated by multiplying the list price of the car, including most accessories, by a percentage. The percentage is set by reference to the rate at which the car emits carbon dioxide:

You can find your 2003/04 taxable percentage of the list price using the following table:

Tax Payable

These standard charges are subject to income tax at basic or higher rate (depending on the employee's rate of pay). The tax is usually collected under the PAYE system by appropriate adjustment of the employee's tax code.

For the benefit to be attractive, the employee must pay less in extra tax than it would cost him to run his own car out of his taxed income. These are examples of the 2003-04 tax costs to an employee of a company car:

The tax charge on fuel provided for private use has been brought into line with the tax charge on company cars. The taxable benefit is calculated by multiplying a nominal figure £14,400, by the same CO2 emissions based percentage. In many cases this could lead to an increase in the amount of tax (and Class 1A NICs) payable.

You can avoid the car fuel charge by either paying for all fuel yourself and claiming the cost of fuel for business journeys at the Inland Revenue advisory rates or by reimbursing your employer for fuel used privately using the same rates.

Many people now question the wisdom of having a company car, and consider instead running their own car and claiming re-imbursement from their employer for business travel. We can help you review your options, the costs and the benefits, so that you can make an informed decision.

Cheap Or Interest Free Loans

Where loans from an employer total more than £5,000, tax is chargeable on the difference between any interest actually paid and interest calculated at the official rate.

Expense Payments

Your employer reports expenses payment to the Inland Revenue on form P11D each year. To avoid paying tax on these payments you have to claim a deduction on your Tax Return - your employer will provide you with a copy of the P11D.

This cumbersome process may be avoided if your employer has been granted a dispensation from reporting such expenses.

You may be able to claim tax relief for other expenses you incur in connection with your job, but the rules are fairly restrictive.

Travel And Subsistence

The rules are that:

• site based employees are able to claim a deduction for travel to and from the site at which they are working, plus subsistence costs when they stay at or near the site

• employees working away from their normal place of work can claim a deduction for the cost of travel to and from their temporary place of work. The maximum period for which a place of work can be regarded as 'temporary' is currently 24 months.

Pensions

Employer contributions to your pension scheme or your own personal pension policies are not liable for tax or NICs. (Note that while your employer can contribute to your personal pension scheme, these contributions are added to your own for the purpose of capping.)

Profit Related Pay

Although there are no tax breaks, profit related pay is an incentive to many to work harder and enjoy some of the benefits of the employer's increase in profits.

There can also be an NI saving for employees (not directors) if performance related pay is not included in the weekly or monthly pay, but instead paid as a bonus.

• Child tax credit & working tax credit