Employment
issues (tax)
Payroll
- Basic Procedures
New
Employer
In
order to set up a Pay As You Earn (PAYE) scheme with the Revenue
it is necessary to contact the New Employer's Helpline
on 0845 6070143 or to complete the appropriate section of
the form CWF1 (Starting in Business).
When you have registered the Revenue will send guidelines
on operating PAYE and National Insurance (NI). There are also
certain statutory payments you may have to make from time
to time which you need to be aware of. These include:
- statutory
sick pay (SSP)
- statutory
maternity pay (SMP)
- statutory
paternity pay (SPP)
- working
tax credit (WTC).
The
Revenue will also send you several booklets and tables to
enable you to make the relevant deductions and payments to
your employees. There is also lots of advice and tax and NI
calculators available on the Revenue's website www.inlandrevenue.gov.uk
Useful
Booklets
The
Revenue publish various booklets which are essential to an
understanding of how PAYE works. These include:
- Tables
A, SR and B to D (or the alternative calculator method)
- The
relevant NI tables
- Day
to day payroll - Employer's Help Book (E13)
- Expenses
and benefits - A tax guide (480)
- What
to do if your employee is sick - Employer's Help Book
(E14)
- Pay
and time off work for parents - Employer's Help Book
(E15)
- Working
Tax Credit paid with wages - Employer's Help Book
(E6)
- Collection
of student loans - Employer's Guide (IR59).
What
Tax Do I Have to Deduct?
By
using the tables provided or the Revenue's website you
should be able to calculate the tax and NI due in respect
of your employees.
The tax due for a particular employee is calculated by reference
to their gross pay with a tax free pay deduction being given
for their particular circumstances (using their coding notice).
The amount of the tax free pay is determined using Table A.
The remainder of the pay is subject to tax and this is calculated
using the appropriate tax tables (SR or B to D) or the calculator
method.
Tax is generally calculated on a cumulative basis, looking
at the individual's circumstances for the tax year to
date.
What
About NI?
NI
is payable by the employee and the employer on the employee's
gross pay for a particular tax week or month and is calculated
on a non cumulative basis. A separate set of tables is used
to calculate the amounts payable. The tables used depend on
the individual's personal circumstances.
When
Does the Tax and NI Have to be Paid to the Revenue?
The
tax and NI should be paid to the Inland Revenue by the 19th
of the month following the payment. Tax months run from the
6th to the 5th of the month, so if an employee was paid on
25 July (tax month being 6 July to 5 August) the tax and NI
would need to be paid over to the Revenue by 19th August.
From May 2004 large employers, with more than 250 employees,
must pay tax and other deductions electronically. Any employer
can pay electronically, if they wish, taking advantage of
the payment date of 22nd as opposed to the usual 19th. Interest
and a default surcharge penalty regime will apply to those
large employers who pay late. These penalties do not apply
to smaller businesses.
Employers whose average monthly payments are less than £1,500
are allowed to pay quarterly rather than monthly.
Forms
You Will Need to Complete
You
will need to complete the following forms:
- P11
Deductions working sheet. This form (or a computer generated
equivalent) must be maintained for each employee. It details
their pay and deductions for each week or month of the tax
year.
- P14/P60
End of year summary. This form has to be completed for all
employees employed in a tax year. Copies are sent to the
Revenue and also given to the employees themselves shortly
after the end of the tax year.
- P35
Employer's annual return. This form details all deductions
you have made for your employees during a tax year to 5th
April (tax, NI and possibly student loan deductions). It
also provides the Revenue with details of statutory payments
you have made to your employees (SSP, SMP, SPP and WTC).
- P45
Details of employee leaving. This form needs to be given
to any employee who leaves and details the earnings and
tax paid so far in the tax year. New employees should let
you have the form from their previous employer.
- P46
Notice of new employee. This form needs to be completed
for new employees who do not have a form P45.
Penalties
The
Revenue imposes penalties on employers who fail to:
- keep
the necessary records
- operate
PAYE or NI correctly
- make
the correct statutory payments
- provide
the Revenue or the employees with the relevant forms on
time.
It
is important that you comply with all the regulations.
How
We Can Help
The
operation of PAYE can be a difficult and time consuming procedure
for those in business. We will be happy to show you how to
operate PAYE properly, offer ongoing advice on particular
issues, or to carry out your payroll for you.
Top
of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
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