问答题
James is about to be made redundant by Quark Ltd. He is seeking advice on the taxation of his redundancy payment
and on the sale of shares acquired via an approved share incentive plan. He intends to form Proton Ltd, which is
expected to be treated as a personal service company, and wants to know how much better or worse off he will be
as compared to the job he is about to lose.
The following information has been obtained from a meeting with James.
James - Income, national insurance and capital gains tax position:
- James is paid a salary of ￡70,000 per year by Quark Ltd.
- He is not contracted out of the State Second Pension.
- He has no income other than that from Quark Ltd and Proton Ltd in the tax year 2012/13.
- He withdrew shares from the Quark Ltd approved share incentive plan on 1 September 2012.
- His disposal of the shares in Quark Ltd is his only disposal for the purposes of capital gains tax in the tax
year 2012/13.
Withdrawal and sale of shares from the Quark Ltd approved share incentive plan:
- James has been awarded free shares on 1 June every year since 2008.
- James withdrew all of the shares in the plan on 1 September 2012 and immediately sold them.
Redundancy and future plans:
- Quark Ltd will make James redundant on 31 January 2013.
- The company will make a redundancy payment to James of ￡38,500.
- In accordance with its usual policy, the company will also pay James ￡17,500 in lieu of notice.
- James will form a new company, Proton Ltd.
Proton Ltd - Activities:
- Proton Ltd will provide services to Quark Ltd and to other companies.
- The services will be carried out by James personally.
- All of Proton Ltd's income will be in respect of relevant engagements and therefore subject to the personal
service company (IR35) legislation.
Proton Ltd - Estimated income and outgoings for a full year:
￡
Gross fee income 80,000
Salary paid to James 48,000
Administrative expenses 3,000
Travel expenses reimbursed to James 1,500
Dividends paid to James 18,000
Notes:
1 Where applicable, the above amounts are stated excluding value added tax (VAT).
2 The travel expenses are those which will be necessarily incurred by James in performing the work for Quark
Ltd and the other customers of Proton Ltd.
Required
(a) Identify the income tax, national insurance contribution and capital gains tax implications, if any, of the
withdrawal and subsequent sale of the shares in Quark Ltd, the redundancy payment and the payment in lieu
of notice.
(b) (i) Prepare calculations to determine the effect on James's annual income, after deduction of all taxes, of
working for Proton Ltd rather than Quark Ltd.
(ii) Calculate the effect on James's annual income, after deduction of all taxes, if the income of Proton
Ltd were not regarded as being in respect of relevant engagements.
(c) Give three examples of specific contractual arrangements that would assist in arguing that the relationships
between Proton Ltd and its customers do not amount to relevant engagements such that they would no
longer be covered by the personal service company (IR35) legislation.
Assume that the tax rules and rates for 2011/12 continue to apply in subsequent years.
and on the sale of shares acquired via an approved share incentive plan. He intends to form Proton Ltd, which is
expected to be treated as a personal service company, and wants to know how much better or worse off he will be
as compared to the job he is about to lose.
The following information has been obtained from a meeting with James.
James - Income, national insurance and capital gains tax position:
- James is paid a salary of ￡70,000 per year by Quark Ltd.
- He is not contracted out of the State Second Pension.
- He has no income other than that from Quark Ltd and Proton Ltd in the tax year 2012/13.
- He withdrew shares from the Quark Ltd approved share incentive plan on 1 September 2012.
- His disposal of the shares in Quark Ltd is his only disposal for the purposes of capital gains tax in the tax
year 2012/13.
Withdrawal and sale of shares from the Quark Ltd approved share incentive plan:
- James has been awarded free shares on 1 June every year since 2008.
- James withdrew all of the shares in the plan on 1 September 2012 and immediately sold them.
Redundancy and future plans:
- Quark Ltd will make James redundant on 31 January 2013.
- The company will make a redundancy payment to James of ￡38,500.
- In accordance with its usual policy, the company will also pay James ￡17,500 in lieu of notice.
- James will form a new company, Proton Ltd.
Proton Ltd - Activities:
- Proton Ltd will provide services to Quark Ltd and to other companies.
- The services will be carried out by James personally.
- All of Proton Ltd's income will be in respect of relevant engagements and therefore subject to the personal
service company (IR35) legislation.
Proton Ltd - Estimated income and outgoings for a full year:
￡
Gross fee income 80,000
Salary paid to James 48,000
Administrative expenses 3,000
Travel expenses reimbursed to James 1,500
Dividends paid to James 18,000
Notes:
1 Where applicable, the above amounts are stated excluding value added tax (VAT).
2 The travel expenses are those which will be necessarily incurred by James in performing the work for Quark
Ltd and the other customers of Proton Ltd.
Required
(a) Identify the income tax, national insurance contribution and capital gains tax implications, if any, of the
withdrawal and subsequent sale of the shares in Quark Ltd, the redundancy payment and the payment in lieu
of notice.
(b) (i) Prepare calculations to determine the effect on James's annual income, after deduction of all taxes, of
working for Proton Ltd rather than Quark Ltd.
(ii) Calculate the effect on James's annual income, after deduction of all taxes, if the income of Proton
Ltd were not regarded as being in respect of relevant engagements.
(c) Give three examples of specific contractual arrangements that would assist in arguing that the relationships
between Proton Ltd and its customers do not amount to relevant engagements such that they would no
longer be covered by the personal service company (IR35) legislation.
Assume that the tax rules and rates for 2011/12 continue to apply in subsequent years.
【正确答案】Text references. Share Incentive Plans and payments on redundancy are covered in Chapter 5. Personal service
companies are dealt with in Chapter 4.
Top tips. Look carefully at the marking scheme as it will give you an idea of what the question involves. For
example, part (b)(i) was worth 8 marks so you should have expected to undertake a fairly complex computation.
The key point to note was that you needed to work out the deemed employment income payment under the IR35
legislation and the income tax and national insurance contributions on this payment.
Easy marks. You should have been able to state three specific contractual arrangements which would assist in
arguing that the IR35 legislation did not apply as these are also relevant in deciding whether an individual is
employed or self employed.
Examiner's comments. In part (a), candidates had a better knowledge of redundancy payments than they did of
share incentive plans. However, candidates with less than perfect knowledge were still able to do well provided they
kept going and addressed every aspect of the question. In part (b), those candidates who had memorised the
proforma used to calculate the deemed employment payment from a personal services company were able to score
well. In the final part of the question candidates had a good knowledge of the features that distinguish an
employer/employee relationship from other relationships where services are provided. However, many did not score
as well as they could because they referred to the general situation, for example the bearing of financial risk, rather
than specific contractual arrangements.
(a) Taxation of shares in Quark Ltd and redundancy payment
Shares in Quark Ltd
Withdrawal of shares
· If the shares have been within the plan for less than three years, income tax and national insurance
contributions will be charged on their market value at the time of withdrawal.
· If the shares have been within the plan for between three and five years, income tax and national
insurance contributions will be charged on the lower of their value at the time they were awarded to
James and their value at the time of withdrawal.
Note
There is no need to consider the situation where the shares have been in the plan for five years or more as
the first award was less than five years prior to the date on which they will be withdrawn as the first award
was made in 2008. The exemption for redundancy also does not apply because James withdrew all of the
shares in the plan in September 2012 but was not made redundant until January 2013.
Sale of shares
· The shares will have a base cost for the purposes of capital gains tax equal to their market value at
the time of their withdrawal from the plan. Accordingly, no capital gain will have arisen on their
immediate sale.
Redundancy payment
· Any amount of statutory redundancy included within the payment is exempt from income tax.
· The first ￡30,000 of the balance of the payment, as reduced by any amount of tax-free statutory
redundancy, will be exempt from income tax provided it relates solely to redundancy and is not
simply a terminal bonus. The remainder of the payment will be taxable as specific employment
income.
Note
Thus a total maximum of ￡30,000 statutory and ex gratia redundancy pay is exempt from income tax.
· The payment in lieu of notice will be subject to income tax as general earnings because it is a
payment to which the employee is contractually entitled.
(b) (i) Effect on James' annual income if works for Proton Ltd instead of Quark Ltd
￡
Reduction in salary ￡(70,000 - 48,000) (22,000)
Add: income tax on salary ￡22,000 × 40% not payable 8,800
NlCs on salary ￡22,000 × 2% not payable 440
additional dividend receivable 18,000
Less: tax on dividend (N) -
tax on deemed employment income (W) (7,329)
NlCs on deemed employment income (366)
Net decrease in James' annual income (2,455)
Working
￡
Income ￡80,000 × 95% 76,000
Less: travel expenses (1,500)
Salary (48,000)
employer's NIC on actual salary
￡(48,000 - 7,072) × 13.8% (5,648)
20,852
Less: employer's NIC on deemed payment
(2,529)
Deemed employment income 18,323
Income tax on deemed employment income
￡18,323 × 40% 7,329
NICs on deemed employment income
￡18,323 × 2% 366
James will be a higher rate tax payer and will pay the additional rate NICs because his salary will
cover the personal allowance and basic rate band for income tax and the primary earnings threshold
and main rate of NIOs.
Note
Because James is treated as receiving deemed employment income from the company, the dividend
received from the company is not also subject to income tax.
(ii) Effect on James' annual income if Proton Ltd not subject to IR35
￡
Anticipated fall in annual income (as in part (i)) (2,455)
Add: income tax no longer payable on deemed employment income (as in
part (i)) 7,329
NICs no longer payable on deemed employment income (as in part
(i)) 366
Less: income tax on dividend
companies are dealt with in Chapter 4.
Top tips. Look carefully at the marking scheme as it will give you an idea of what the question involves. For
example, part (b)(i) was worth 8 marks so you should have expected to undertake a fairly complex computation.
The key point to note was that you needed to work out the deemed employment income payment under the IR35
legislation and the income tax and national insurance contributions on this payment.
Easy marks. You should have been able to state three specific contractual arrangements which would assist in
arguing that the IR35 legislation did not apply as these are also relevant in deciding whether an individual is
employed or self employed.
Examiner's comments. In part (a), candidates had a better knowledge of redundancy payments than they did of
share incentive plans. However, candidates with less than perfect knowledge were still able to do well provided they
kept going and addressed every aspect of the question. In part (b), those candidates who had memorised the
proforma used to calculate the deemed employment payment from a personal services company were able to score
well. In the final part of the question candidates had a good knowledge of the features that distinguish an
employer/employee relationship from other relationships where services are provided. However, many did not score
as well as they could because they referred to the general situation, for example the bearing of financial risk, rather
than specific contractual arrangements.
(a) Taxation of shares in Quark Ltd and redundancy payment
Shares in Quark Ltd
Withdrawal of shares
· If the shares have been within the plan for less than three years, income tax and national insurance
contributions will be charged on their market value at the time of withdrawal.
· If the shares have been within the plan for between three and five years, income tax and national
insurance contributions will be charged on the lower of their value at the time they were awarded to
James and their value at the time of withdrawal.
Note
There is no need to consider the situation where the shares have been in the plan for five years or more as
the first award was less than five years prior to the date on which they will be withdrawn as the first award
was made in 2008. The exemption for redundancy also does not apply because James withdrew all of the
shares in the plan in September 2012 but was not made redundant until January 2013.
Sale of shares
· The shares will have a base cost for the purposes of capital gains tax equal to their market value at
the time of their withdrawal from the plan. Accordingly, no capital gain will have arisen on their
immediate sale.
Redundancy payment
· Any amount of statutory redundancy included within the payment is exempt from income tax.
· The first ￡30,000 of the balance of the payment, as reduced by any amount of tax-free statutory
redundancy, will be exempt from income tax provided it relates solely to redundancy and is not
simply a terminal bonus. The remainder of the payment will be taxable as specific employment
income.
Note
Thus a total maximum of ￡30,000 statutory and ex gratia redundancy pay is exempt from income tax.
· The payment in lieu of notice will be subject to income tax as general earnings because it is a
payment to which the employee is contractually entitled.
(b) (i) Effect on James' annual income if works for Proton Ltd instead of Quark Ltd
￡
Reduction in salary ￡(70,000 - 48,000) (22,000)
Add: income tax on salary ￡22,000 × 40% not payable 8,800
NlCs on salary ￡22,000 × 2% not payable 440
additional dividend receivable 18,000
Less: tax on dividend (N) -
tax on deemed employment income (W) (7,329)
NlCs on deemed employment income (366)
Net decrease in James' annual income (2,455)
Working
￡
Income ￡80,000 × 95% 76,000
Less: travel expenses (1,500)
Salary (48,000)
employer's NIC on actual salary
￡(48,000 - 7,072) × 13.8% (5,648)
20,852
Less: employer's NIC on deemed payment
(2,529)Deemed employment income 18,323
Income tax on deemed employment income
￡18,323 × 40% 7,329
NICs on deemed employment income
￡18,323 × 2% 366
James will be a higher rate tax payer and will pay the additional rate NICs because his salary will
cover the personal allowance and basic rate band for income tax and the primary earnings threshold
and main rate of NIOs.
Note
Because James is treated as receiving deemed employment income from the company, the dividend
received from the company is not also subject to income tax.
(ii) Effect on James' annual income if Proton Ltd not subject to IR35
￡
Anticipated fall in annual income (as in part (i)) (2,455)
Add: income tax no longer payable on deemed employment income (as in
part (i)) 7,329
NICs no longer payable on deemed employment income (as in part
(i)) 366
Less: income tax on dividend
【答案解析】