Employee Taxation
Tax rates and payment
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 page 2.

If the tax underpaid is up to £2,000 and the 2007/08 tax return is submitted by 30 September 2008, or e-filed by 30 December 2008 the underpayment can be settled through PAYE for 2009/10 rather than being collected on 31 January 2009.
 
Class 1 NIC rates 2007/08
Employers and employees both contribute. Employee contributions are payable at 11.0% or 9.4% between the primary threshold and the upper earnings limit, and a charge of 1% applies to all pay above the upper earnings limit.
  week month year
LEL: lower earnings limit £87 £377 £4,524
PT: primary threshold 100 435 5,225
UEL: upper earnings limit 670 2,903 34,840
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.
  Employee Employer
  In Out In Out FS Out MP
PT - UEL 11.0 % 9.4% 12.8% 9.1% 11.4%
Above UEL 1.0 % 1.0% 12.8% 12.8% 12.8%
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.
 
Employee benefits
Employee benefits 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.
Cars provided by the employer: a percentage of the original list price of the car, depending on the CO2 emissions rating of the car.
  2007/08
15% of list price to 144g/km
1% addition 145, 150 etc.
max 35% benefit over 239g/km
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.
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.
To calculate the taxable amount the percentage used to calculate car benefit is applied to a standard figure of £14,400.
Vans provided by the employer for an employee's private use are charged at a flat rate of £3,000. If fuel is provided as well, an additional £500 is charged. If private use is restricted to home-to-work travel, there is no tax charge.
Loans of money of over £5,000 are charged on the excess of the official rate (5% since 5.4.02, subject to change) over any interest actually paid by the employee to the employer.
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.
Main exempt benefits in kind
Many employee benefits are not charged to tax. A full list cannot be given here, but some of the principal ones are:

* providing one mobile phone, even with private use.

* subsidised meals available to all employees in a staff restaurant or canteen;

* the provision of 'green transport' such as works buses or the use of a bicycle for commuting.
 
Exempt mileage allowances: employee's own car
First 10,000 miles Extra miles Each passenger
40p 25p 5p
 
Exempt fuel-only allowances: company car
Engine cc Petrol engine Diesel engine LPG
1400cc or less 9p 9p 6p
1401cc - 2000cc 11p 9p 7p
over 2000cc 16p 12p 10p
 
Other exempt payments to or for employees
* 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).
 
Employee share schemes
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.
Share incentive plans (SIP)
* '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.
Enterprise management incentives - small trading companies can grant options to buy up to £100,000 worth of shares to selected employees.
Company share option plans - share options to buy up to £30,000 of shares can be granted to employees.
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/NIC on exercising the options. The CGT charge is likely to be smaller and later than the IT/NIC.