Rules and Practice Relating to the Exemption of Job-Related Accommodation from a Charge to UK Income Tax - Coursework Example

Taxation Research Project By Finance and Accounting of A SUMMARY of the rules and practice relating to the exemption of job-related accommodation from a charge to UK income tax According to the general tax law of the UK, some expenses payments and benefits are taxable remunerations. In addition, the income law contains particular laws that affect the majority of the directors and employees. The wider knowledge of these specific rules involved expenditure payments made and benefits offered to them became taxable. It is imperative to note that the Finance Act of 1976 and other subsequent Acts have made it possible for other groups of individuals to be guided by these rules1. For the case of exemption of job-related accommodation, provision of living-accommodation for a worker is possibly taxable earnings enshrined in the general principles. Living accommodation comprises of all forms of residential facilities. This includes the houses, holiday homes, mansions and flats among others. However, the hotel accommodation and lodging do not fall in this class2. The basic charge for any worker is called the cash equivalent of any living housing offered to him, or members of his family by his employer in a given tax year. This inquiry finds out that the cash equivalent of the provision of accommodation for a phase is called the rental value of the accommodation for that phase subtract any amount of money made good by the worker to the individual at whose cost the accommodation is provided credited to the stipulation3. This is much easier to compute when the employer rents the housing. On the other hand, when the employer owns the housing, the tax charge is based on the Gross Rateable Value (GRV). This method is a complicated computing approach. Cases of one tax planning opportunity, which can be considered is the accommodation offered by a different individual apart from the employer. It should be notable that, a similar charge arises where a third party offers the housing for the sole reason of employment. According to the rules and principles that guide the UK tax planning and determination on accommodation, the revenue assumes that a benefit that is offered by a different person apart from the employer, nonetheless which is directly associated with the employment has been offered because of the employment4. The question that arise from this explanation is, how then does the provision of accommodation lie under the “tax free status” We consider the following kinds of rules Proper performance of the duties-the “necessary’ rule In chapter 5, part 3 of the ITEPA 2003 do not apply living accommodation offered for an employee if it is essential for the appropriate performance of the roles, which the workers should dwell in the accommodation offered. According to the EIM11366, correct performance exemption do not apply to directors, save for each such directorship, he has no material concern in the organization. In addition, the director who does not work on full time terms and his interests in the company do not go beyond 5% falls in this category. Moreover, companies created for charitable reasons fall under this category5. Better Performance of duties- the Customary rule The exemptions are applicable where the following situations are achieved The accommodation is offered for better performance of the roles of the employment and The workers’ employments’ customary requirement that employers to offer living accommodation for their workers According to apt performance exception, the enhanced performance test is an aim one forced by the roles of the employment. In essence, the fact that the accommodation is close to the workers’ work will not bear any burden. The perspective of the revenue is that a practice is termed as customary if it is cognizable as the tradition and if failure to observe it is exceptional6. The Revenue will acknowledge that the better performance test is reached when: The worker is on call outside the usual hours; the worker is called out habitually and when the employment is offered so that the worker may have quick access to the place of work any other place the worker is called. This brings us to the categories of the employees who are eligible to get the living accommodation exclusion available under Section 99(2) ITEPA7. They include The police officers who include the Prison governors, office and the ministry of Defense, the Clergymen and ministries of churches, administrators of newsagent shops with paper rounds, administrators of the cultural off-license shops, head teachers, bursars, matrons and medical staff, stable racehorse staff who dwell in the premises8. The above listed examples of workers for whom the Revenue agree that the customary test is achieved but for whom the better performance test has to be considered individually include the Veterinary Surgeons and managers of camping sites. Consider the following taxation tables Additional Material The points included in this summary are well selected to facilitate easier understanding of the situations where the living accommodation exemptions are applicable. For instance, the case of exemption of job-related accommodation, provision of living-accommodation for a worker is possibly taxable earnings enshrined in the general principles. The central issue that comes out in a distinctive manner is the difference between the Proper performance of the duties-the “necessary’ rule and the Better Performance of duties- the Customary rule. These rules are applicable in diverse situations. I chose to elucidate this point of rules because it is complex to understand the essence of both of them; particularly for a person whose is not well conversant with the UK tax regulations. In addition, the insight offered in this study indicates that the rule on better Performance of role is superior to that based on the tradition. On the other hand, the materials used in this case are readily available online and they give an in-depth understanding on planning taxes. The document ITEPA is significant in this study because it offers great revelation on the rules governing the tax planning. The document opens a mindset that does not differentiate the circumstances under which certain employees’ living accommodation is exempted. In addition, the aspect of the employees who are eligible to get the living accommodation exclusion is available under Section 99(2) ITEPA)9. In addition, the aspects of percentages used in computing can be understood by following the criteria indicated in this document. The sources are reliable as they offer the dynamic indicators of a taxation system, which include the Adam Smith’s cannons of taxation. The sources can help uninformed individuals to understand the attributes of a good tax system. This summary is easy to follow and can be used by inexperienced person as a tool to meet new clients. I have not used any diagram at this point because majority of the learning of this resource is easy and comprehendible. In conclusion, the use of the above-discussed points with the well-blended sources will help the readers especially those with limited knowledge about the tax exemption lessons to understand every detail and processes attributed to tax planning. This format of writing this piece of work is convenient because it does not need a lot of formatting. It is easy to follows A REPORT on the taxation of living accommodation in Singapore I have chosen go to Singapore and work there after my graduation. Singapore’s taxation system has been in place for almost 50 years. Despite the dynamism in the local and global economic front, the system has remained relevant and beneficial to the employees and the government. However, from 2015, the system will be adjusted to align with the present employee and government needs10. Consider the following trend of taxation of the living accommodation. Place of Residence or serviced apartment by employer For the case of place of residence or serviced apartment, which is outside the hotel, building, offered by the employer, for a market price, then it follows that the employee gains a taxable employee benefit. The taxation criterion applicable involves 10% of employment income or the yearly value of the property, then less the rent paid by the employee11. In addition, the coast of the furniture and fittings provided in the apartment is included in the calculation. Consider the example below John Brown is an employee and is paid a salary of $200,000 and an additional benefit of $ 50,000 in a calendar year. In addition, Brown is provided with a complete furnished accommodation in a residential apartment whose annual value is approximated at $30,000. The total value of the furniture and fittings is $3000. The total rent paid is $6,000 per annum. Compute the taxable value as well as the furniture and fittings. We consider the table below Lower 10% of the employment income Less rent paid by Brown 10/100 * ($200,000+$50,000+$3,000) = 25,300 Less rent paid 25300-6000 =19300 Therefore the taxable income of accommodation plus furnishing is obtained as follows 25300+3000-6000 = 22300 N/B The taxable benefit attributed to furniture and fittings varies on the items offered to the employees Consider a case where two or more employees share the housing. The taxable value will be calculated as follows Lower of 10% of employment income, or AV/number of occupants sharing the apartment Less rent paid by employee 10/100 ($200,000+$50,000+3000/2) = 25,150, or 30,000/2 =15,000 Less the rent paid by the employee ($6000) Then the taxable benefit of accommodation and furnishing is computed as follows ($15,000 + $3000/2 - $ 6000) = $ 10,500 It should be noted that, computation of the taxable value for the director is a bit different because it is done based on the whether the director’s salary is less than the annual value of the property, otherwise The taxable value = Annual Value A case where hotel accommodation is provided to employee, the taxable benefit and value is calculated as follows Let us consider the example below An employer offered hotel accommodation to his employee, wife and child aged 5 years between 1st January 2014 and 31st January 2014. The sum of the expenditure incurred for this period is $6200. The employee paid the employer $500. The basic salary paid to the employee is $100,000in 2014. The taxable value will be There were 31 days of stay 2/100 * [($100,000 *31/365)] + [($250 +$250+$50) *12* 31/365)] = $730 Institution of learning In the case of the employees of an academic institution offered with accommodation in the campus, where the employee pays reasonable rent, then one qualifies for the taxable benefit12. This accommodation offered by the campus of institution is meant for accommodating a spouse and children. The reasonable rent paid refers to the market value of the rent paid by other employees. However, if the rent paid is less than the market rent value, then the difference should be included in the income for taxation13. All these values used in the determination of the accommodation benefit in this scenario should be well evaluated on an annually. It should be noted that, the taxation formulas and rates used in Singapore have not been altered since 1960s, and the government has decided to use different rates and formulas as from 2015. The government argues that the present rates do not replicate the real benefits enjoyed by the employees. In addition, the government asserts that the intended changes are intended to abridge tax compliance for establishing the taxable value of accommodation related benefits, consequently making the tax system more equitable. However, In the case of house allowance, it remains taxed as income earned because, there no changes implied on this item. This implies that depending on the situation at hand, it might be beneficial for the workers to receive housing allowance as a substitute of an accommodation benefit. In essence, the above explanations on the taxable value and accommodation benefits to employees give me a glimpse of the taxation system of Singapore, and I believe, with this information I am well informed. I now understand the extent to which I participate as a taxpayer in Singapore14. Adam’s Smith’s Cannons of Taxation in relation to employees Benefits in Singapore Cannon of equality The cannon of equality is taken to be a significant aspect of any taxation system. The term equality in taxation does not imply that all people should pay equal taxes and accrue equal benefits. It simply means that, the element of equality should be integrated in the individual sacrifice according to the level of income. All the people should pay taxes proportionate to their income. Equally, the benefits attributed to these employees differ depending on the salary earned. For instance, the higher the salary paid, the higher the tax paid and benefits received. This principle follows the progressive trend, which is evident in the Singapore taxation value and accommodation benefits15. The examples considered above indicate that employees earning a higher salary pay much higher as taxation value. On a similar note, they gain relatively higher accommodation benefits. From this scenario, it is notable that the Singapore taxation trend on accommodation benefits aligns well with the Adam’s principle of equality or ability, consequently less difficulties in meeting the tax obligations. A country that exercises the principle of equality in its taxation system enjoys a health workforce and an economy that is not strained by labor attributes16. This implies that a health populace supports Singapore’s economic trend thus giving the nation a foundation to have a stronger Gross Domestic Product, which is a sure indicator of a developing nation. The Cannon of Certainty The cannon entail the aspect of certainty in relation to the amount the taxpayer is required to pay in a financial year. This principle is critical in decision making of the taxpayers because they are privy of the expected percentage they need to remit to the government as taxes. As observed from the tax computation certainty of the Singaporean tax system on accommodation benefits is achieved through the fixed set calculation variables. For instance, the 10% on income and the annual value of the property remain constant. The only varying element involves the income and the value of the property. This varies from one employee to another. This implies that the consistency of the determining factors makes the Singaporean tax system certain in accordance to Adam Smith’s assertion. It should be realized that, this canon is not only significant to employees for budgeting but also to the government, since it enables the state’s financing organs to estimate the amount of money they expect from the taxpayers17. On a similar note, the close correlation between the Singaporean taxation system with Adam Smith’s cannon’s has played a fundamental role in the overall growth of the nation’s economy by allowing numerous foreign investors from across the globe to flock the nation and invest. It is imperative to note that a certainty that can be budgeted for is an incentive of any investor, because most investors are 18skeptical investing in unpredictable states of economy. The insight about the Adam’s Smith’s cannon of certainty is critical even in the overall decision-making of the nation’s development endeavors. Cannon of Convenience The underlying implication of this principle involves the levying of the tax at the time and method, which is most opportune for the contributor to pay. This means that, the taxes should be levied at the time the taxpayers expect money on either income or other sources such as property among others. In the case of accommodation as observed in the examples computed in this study, the tax is levied at the end of the month. This scenario is evidences that the taxation system on accommodation in Singapore is convenient to the contributor according to Adam Smith’s Cannon19. This trend will save the contributor from a lot of inconvenience. This cannon is critical in attracting investors because they can easily know what they are expected to pay as tax and the benefits of accommodation they are entitled and the time for payments. This enhances convenience in investing. The Cannon of Economy of Efficiency The cannon of economy has an implication that all the expenditure of collecting the taxes from the tax payer should be less excessive and sustained at the lowest level as possible. This aspect should be consistent with the management of efficiency20. From the computational table indicated in this study, there no excessive cost in collecting the accommodation related taxes, because they are calculated and deducted from the income and allowances offered to the employee. The Singapore economy has remained aligned with the Adam Smith’s principles and this has made the country’s economic trend move towards the positive trend. It is indisputable that Singapore’s economy is an envy of the world since most of the financial experts and investors have heavily occupied the country for business ventures. This enormous rate of foreign investors is immensely attributed to the stable taxation system that is glued to the Adam Smith’s taxation cannons. Indeed Adam’s cannons of taxation form a sure foundation of any growing economy. Take an example of the unemployment rate in Singapore, which is merely 1.8. What does this rate imply? An economy, which is based on a strong foundation of all the tenets that support sound taxation system stand to gain stability and vitality. The nation stands to prosper, particularly after the implementation of the 2015 taxation changes, which are intended to reflect the actual accommodation benefits of employees. Sources of tax information you would rely on for your chosen jurisdiction An employee An employee will find the information posted on the Inland Revenue Authority of Singapore significant because it includes all the information the concerns an employee. The information is regarded as authentic because it comes from the employer. There is no way an employer responsible for the authenticity of information regarding employees’ benefits and attributed taxes which make up its income, can provide wrong information21. Therefore, I recommend any employee or interested to be employed by the government of Singapore to check and rely on the information provided in the Inland Authority of Singapore. Information such as the obligation of the employee is well stipulated in this website. Employer In the case of the employer, the same website- Inland Revenue Authority of Singapore is fundamental and I recommend any employer apart from the government to consult from this website. The primary reason for recommending this website is that all the private employers are answerable to the government in term of tax returns and compliance issues. Information concerning reporting the employees’ earnings is readily available under appendix IR8A, and IR8S. In addition, information concerning the Auto- Inclusion Scheme for Employment Income is available22. This is authentic information that can guide an employer to make sound decisions in accordance with the government’s requirements23. It is imperative to note that, sourcing information directly from the government helps in complying with the government thus making the employer’s procedures easy and manageable. For instance, the Auto-Inclusion Scheme for Employment Scheme is critical for the employer because it offers a platform through which all the details of the employee’s income are sent to IRAS electronically. Tax Advisor In the case of a tax advisor, he also needs to consult the government website, because it has the responsibility of all the taxation rules and all persons interested in investing tin the country are answerable to the government. This implies that a tax advisor should source the information from reliable source before disseminating it to other parties, which include companies or individuals who interested to invest in the country. List of References https://www.iras.gov.sg/irashome/page.aspx?id=2890 REDSTON, A. (2009). Tolleys yellow tax handbook. ITEPA 2003 to FA 2009 2009-10, Part 1b, 2009-10, Part 1b. London, LexisNexis Tolley. ABELLA, M. I., & MANGAHAS, M. A. A. (2007). Sending workers abroad: a manual for low- and middle- income countries. Geneva, Switzerland, International Labour Office. BIRD, R. M., & OLDMAN, O. (2007). Readings on taxation in developing countries. Baltimore, MD, Johns Hopkins Press. LI, Q. (2006). Democracy, Autocracy, and Tax Incentives to Foreign Direct Investors: A Cross-National Analysis. Journal of Politics. 68, 62-74. TEOH, L.-E., SOIN, B. S., & SEAH, C.-L. (2009). Business operations in Singapore. Arlington, VA, Tax Management PAUL WAN & COMPANY. (1998). Goods & services tax in Singapore. Singapore, Paul Wan & Co. Read More