Pay As You Earn Wages And Salaries Tax Scheme ExplainedPosted by Jefferson Cabrera on May 12th, 2021 PAYE is the common abbreviation for the Pay As You Earn scheme that has been first introduced by the united kingdom in 1944 as a tax system by the inland revenue which employers administer to deduct from employees wages and salaries income tax and national insurance contributions and account for the employers national insurance contributions. Although strictly speaking not the main PAYE scheme employers also use the pay as you earn framework and documents to manage other deductions. Every employer in the UK must register being an employer with the tax authority. Register to administer a PAYE scheme is obligatory if the employee has other paid employment or has earnings at or above the PAYE threshold and responsible for deductions of income tax, or has earnings at or above the national insurance lower earnings level. Registration can take place up to four weeks before the first qualifying employee is engaged. The Paye system is a scheme whereby employees are deducted tax and national insurance on a weekly or monthly basis in line with the frequency of wage and salary payments by the employer who then pays the income tax and national insurance contributions over to the inland revenue in the united kingdom each month. The employer is also responsible for keeping an archive of the employers national insurance contributions which alongside the employee deductions are paid over to the tax authority on or before the 19th of the month following pay period. Small business that has a quarterly liability to tax and national insurance significantly less than 1,500 pounds per quarter can arrange to pay the PAYE every three months rather than every month. PAYE administration involves the calculation of tax utilizing a tax code system. Each employee is allocated a tax code which includes a number add up to approximately one tenth of the personal tax allowance as adjusted by the employee personal tax adjustments. Special conditions and circumstances for every employee is normally representing in the tax code with a letter known as a suffix to the prefix tax code number. 薪俸稅 The financial tax year in the united kingdom is from 6 April twelve months to 5 April the following year with each tax year divided into 53 specific week numbers that accounts for days over at the end of the year and in addition into 12 monthly periods. Income tax deducted is calculated by the employer operating the PAYE scheme on a cumulative basis during the tax year through the use of either manual tax tables or a payroll software package. The tax table is arranged to look for the tax free allowance each pay week or month during the year based on the employee tax code. To calculate the income tax the employer determines the cumulative tax free allowance in a particular week or month and deducts this allowance from the cumulative gross pay that employee arrives at that tax week including current wages or salary and all previous income earned through the current tax year including any earnings from other employers. Having established the taxable pay that amount is then applied to the percentage of income tax to be paid under the current tax rules for that financial year. The employer is in charge of deducting the correct level of tax, issuing the employee a payslip to advise the tax deducted and in addition for paying the income tax deducted to the tax authority. The PAYE calculations and production of payslips is an essential function of payroll software that many employers adopt to make sure accuracy and compliance with the regulatory bodies tax rules. The second major section of PAYE administration is for employees to deduct national insurance contributions from employees. National insurance contributions are calculated not on a cumulative basis as income tax but are calculated according to the gross income earned in a particular pay period based on the gross pay throughout that weekly or monthly pay period. The volume of national insurance deducted is determined by looking up the employee gross pay on a national insurance deductions table. Another national insurance table is applied based on the personal circumstances of the employee. In addition to the employee national insurance contribution each employer also has to pay an employer national insurance contribution. PAYE administration is a group of payroll and deductions documentation linked to the payment of wages and salaries to employees. Nearly all businesses use payroll software to automate the calculations and produce the information required for the PAYE returns. The starting place of the PAYE system is the P45 which all employees receive when they leave an employment and is really a certificate of the cumulative gross pay and tax deducted up to the date of the P45. Details from the P45 also include the employee tax code that must definitely be entered in to the employee PAYE records to enable the brand new employer to calculate the tax due to date. If an employee does not hand the new employer a P45 they are taxed on weekly to week basis until the tax code and cumulative tax position are known. Confirmation of an employee tax position is obtained by the brand new employer by submitting a P46 form to the Inland Revenue when a worker doesn't have a P45. Having engaged an employee and deducted income tax and national insurance contributions the employee must receive a payslip from the employer showing the gross pay, deductions and net pay. In additional the employer must also maintain records of payments to the employee and deductions made. Payroll software can produce these records and the Inland Revenue also provide small employers with a P11 deductions working paper for this function. At the end of the financial tax year for payroll three main PAYE documents must be completed by each employer. Each employee should be given a P60 certificate of earnings and deductions through the financial year. The P60 is an important document and often required for many diverse purposes unconnected with the PAYE system such as for example future mortgage applications and other purposes as proof income. The employer also has to complete a P14 for each employee which is the proper execution which the employee deductions and statutory payments are recorded. The P14 is delivered to the Inland Revenue. In addition every employer also has to complete a P35 that is the Annual Employers Return which lists the name of every employee, the income tax deducted and national insurance liability including employee and employer contributions. The P35 also contains statutory payments made to employees and the quantity of the employer has recently paid to the Inland Revenue. In the united kingdom employers can get a tax free bonus for filing the P35 details online.Like it? Share it! More by this author |