| Tax rates and payment |
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Employment income is charged to both income tax (as 'general' income) and to Class 1 National Insurance Contributions. Tax and NIC are normally paid by the employer through the PAYE system, but an employee whose tax is not fully paid should complete a tax return and settle the liability as described on Personal Taxation.
If the tax underpaid is up to £2,000 and the 2002/03 tax return is submitted by 30 September 2003, the underpayment can be settled through PAYE for 2004/05 rather than being collected on 31 January 2004. |
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| Class 1 NIC rates 2003/04 |
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| Employers and employees both contribute. Employee contributions used to be capped at the upper earnings limit, but a new charge of 1% will now apply to all pay above the primary threshold. |
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Week |
Month |
Year |
| LEL: lower earnings limit |
£77.00 |
£334.00 |
£4,004.00 |
| PT: primary threshold |
89.00 |
385.00 |
4,615.00 |
| UEL: upper earnings limit |
595.00 |
2,579.00 |
30,940.00 |
|
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No NIC are payable by employee or employer on earnings up to the PT.
Earnings between the LEL and the PT must be reported by the employer, and the employee receives credit towards the State Pension, but no NIC are payable.
Rates of NIC on earnings above the PT depend on whether the employee is within the State Second Pension (S2P), or whether the employer has 'contracted out' using a final salary (FS) or money purchase (MP) scheme. |
| |
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Employee |
Employer |
| |
In |
Out |
In |
Out FS |
Out MP |
| PT - UEL |
11.0 % |
9.4% |
12.8% |
9.3% |
11.8% |
| Above UEL |
1.0 % |
1.0% |
12.8% |
12.8% |
12.8% |
|
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Contracting-out employers receive a special rebate on earnings between the LEL and the PT.
A person with more than one employment can defer the payment of some employee NIC until after the end of the tax year, when the total amount payable can be checked and limited so the full 11% rate is only applied to income between the PT and the
UEL. |
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| Benefits in kind |
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| Benefits in kind are usually valued at a 'cash equivalent' and are then charged to income tax on the employee and Class 1A NIC (at 12.8%) on the employer. The cash equivalent is generally based on the cost to the employer of providing the benefit, but the following are charged according to a statutory formula. |
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| Cars provided by the employer: a percentage of the original list price of the car, depending on the CO2 emissions rating of the car. |
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2002/03 |
2003/04 |
2004/05 |
| 15% of list price |
to 169g/km |
to 159g/km |
to 149g/km |
| 1% addition |
170, 175 etc. |
160, 165 etc. |
150, 155 etc. |
| max 35% benefit |
over 264g/km |
over 254g/km |
over 244g/km |
|
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| For diesel cars add 3% (min. is 18%, max. still 35%). There is no discount for the level of business mileage or the age of the car, but deduct employee contributions for private use. |
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Fuel provided by the employer for private use in a company car is charged without reduction for contributions unless all private fuel is paid for by the employee.
Up to 2002/03, the taxable amount varied according to engine size and type of fuel. For 2003/04, the percentage used to calculate car benefit will be applied to a standard figure of £14,400. |
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| Vans provided by the employer are charged at a flat rate of £500 (£350 if the van is over four years old at the end of the tax year). |
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| Loans of money of over £5,000 are charged on the excess of the official rate (5%) over any interest actually paid by the employee to the employer. |
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| Use of assets is charged at 20% of the original cost of the assets to the employer, or the value when first made available to the employee, less any amount paid by the employee for private use. |
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| Main exempt benefits in kind |
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Many benefits in kind are not charged to tax. A full list cannot be given here, but some of the principal ones are:
* providing a mobile phone, even with private use (but paying the bills on the employee's own phone remains chargeable)
* lending computer equipment where the 20% charge would be up to £500
(ie value up to £2,500)
* the provision of 'green transport' such as works buses or the use of a bicycle for commuting. |
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| Exempt mileage allowances: employee's own car |
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| First 10,000 miles |
Extra miles |
Each passenger |
| 40p |
25p |
5p |
|
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| Exempt fuel-only allowances: company car |
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| Engine cc |
Petrol engine |
Diesel engine |
| 1400cc or less |
10p |
9p |
| 1401cc - 2000cc |
12p |
9p |
| over 2000cc |
14p |
12p |
|
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| Other exempt payments to or for employees |
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* mileage allowances of up to 24p per mile for business use of the employee's motorcycle or 20p per mile for a pedal cycle
* contributions to approved pension schemes
* payments of up to £5 a night when staying away for 'personal incidental expenses' (£10 if abroad).
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| Employee share schemes |
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Generally, employees are charged to income tax on the value of shares that they are given or issued by their employer, less any amount paid for the shares. This applies to 'free shares' and to shares acquired under option schemes. NIC is also charged if the company is quoted, as the shares can be easily sold.
If the employer operates one of these 'Revenue-approved' share schemes, the tax charge may be eliminated, reduced or deferred. |
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| Share incentive plans (SIP) |
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* 'free shares' to £3,000pa
* 'partnership shares' (employee buys with pre-tax salary) max £1,500pa, employer can 'match' with up to 2 more for each
one purchased.
* shares left in the scheme for at least 5 years: no income tax or CGT on the value when they leave the scheme. |
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| Enterprise management incentives - small trading companies can grant options to buy up to £100,000 worth of shares to selected employees. |
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| Company share option plans - share options to buy up to £30,000 of shares can be granted to employees. |
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Approved savings-related share option plans - employees contribute to a Save As You Earn plan (max. £250 a month) to save the money needed to exercise options.
With approved option schemes, the employee pays CGT on sale of the shares rather than income tax on exercising the options. The CGT charge is likely to be smaller and later than the
IT/NIC. |
| Income tax and capital gains tax rates |
| |
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2003/04 |
2002/03 |
| Starting rate on first |
£1,960 |
£1,920 |
| Basic rate on next |
28,540 |
27,980 |
| Higher rate on taxable income over |
30,500 |
29,900 |
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| Rates differ for |
General |
Savings |
Dividend |
| Starting |
10% |
10% |
10% |
| Basic |
22% |
20% |
10% |
| Higher |
40% |
40% |
32.5% |
|
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| Allocation of rate bands |
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Taxable income uses up the rate bands in the following order:
* 'general income' (employment, business, rent)
* 'savings income' (mainly interest)
* 'dividends' (mainly distributions from companies)
Capital gains (after annual exemption and taper relief, see Personal Taxation and Capital Gains Tax) are added to the total income as the 'top slice' and taxed at the rates applicable to savings income (10%, 20% or 40%). |
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| Extension of basic rate band |
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| A taxpayer who pays personal (including stakeholder) pension policy premiums, or cash gifts to charity, increases the basic rate band by the grossed up equivalent of the payment. This means that more tax is paid at the basic rate and less is paid at the top rate. |
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| Filing of return and payment |
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2003/04 personal tax return: due to be filed by 31 January 2005
* penalty for late return: £100 (or the tax due, if less)
2003/04 tax payable:
* tax on employment income paid under PAYE each month
* basic rate liability on savings and dividends usually settled by receiving the income net of tax paid or credited
* balance of tax due under self assessment (SA):
- payments on account due 31 January 2004 and 31 July 2004, based on the 2002/03 SA income tax and Class 4 NIC
- balance, plus any CGT, due 31 January 2005, with the first payment on account for 2004/05
Missing any payment dates leads to interest; missing the balancing payment date by 28 days will lead to a 5% surcharge. |
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| Main personal allowances |
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2003/04 |
2002/03 |
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| Personal income tax allowance |
£4,615 |
£4,615 |
| CGT annual exemption |
7,900 |
7,700 |
| Children's tax credit* |
- |
**5,290 |
| Blind person's allowance |
1,510 |
1,480 |
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* Allowed at 10% only. Reduced by £2 for every £3 by which the parent or partner's income exceeds the higher rate threshold
(ie nil if £7,935 is taxed at higher rates in 2002/03)
** £10,490 if a child was born in 2002/03 (reduced to nil when income of £15,735 is taxed at higher rates)
|
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| Age allowances |
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2003/04 |
2002/03 |
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| Personal allowance (PA) |
|
|
| * Age 65 - 74 |
£6,610 |
£6,100 |
| * Age 75 and over |
£6,720 |
£6,370 |
| * Minimum* |
£4,615 |
£4,615 |
| Married couple' allowance (MCA)** |
|
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| * Age 65 - 74 |
£5,565 |
£5,465 |
| * Age 75 and over |
£5,635 |
£5,535 |
| * Minimum* |
£2,150 |
£2,110 |
| Income Limit |
£18,300 |
£17,900 |
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* If the taxpayer's total income exceeds the income limit (extended for gift aid and pension contributions), one-half of that excess is deducted from the allowances - first from the PA until the minimum is reached, then from the MCA until the minimum is reached.
* Amount depends on age of older spouse; allowed at 10%; nil if born after 5 April 1935; reduced if marriage took place during the tax year. |
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| Main personal reliefs |
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Rent-a-room exemption for letting out part of the taxpayer's only or main residence: gross income of £4,250pa
Gift aid: on a cash gift to charity, the charity can reclaim 22/78 (28.2%) of the donation from the Inland Revenue if the donor makes a declaration. The donor increases the basic rate band by the gross gift (100/78). The market value of gifts of land or quoted shares can be deducted from taxable income for full tax relief, and the charity pays no tax on the gift received. |
