Flashcards in Module 6 PAYE and NIC Deck (23)
What is Pay as you earn?
PAYE is a system used to collect tax from employment
How are taxable non-cash benefits taken?
The tax due is collected from cash remunerations and Personal allowance is reduced by the net amount to reflect this.
Does the PAYE code affect personal allowance in the tax computation?
No, PAYE code only tells the employer how much tax to deduct at the source.
What PAYE code is for negative personal allowance?
K code is for negative personal allowance however this is capped at 50% of the amount of actual cash remuneration on pay day.
PAYE is cumulative in nature?
True - when calculating tax, it is the cumulative tax that is being calculated.
When does an employer need to pay tax and NIC to HMRC?
Within 17 days of the end of each tax month.
Employers whose payments do not exceed an average of £1500 can pay quarterly instead of monthly.
Late payments of Tax and NIC attracts interest?
What is a P60?
P60 is given before 1st of June by 31 May following end of tax year and it shows an employees total taxable emoluments payable for the year and total tax deducted.
What is a P45?
P45 is given to employees who leave a business and is given to new employer for PAYE calculations
What is Class 1 primary contribution
This is national insurance paid by employees on their employment income and other cash earnings (bonus)
What is class 1 secondary contribution?
This is national insurance paid by employers on their employees income
Who doesn't pay National insurance?
Under 16s (no liability for employer) or employees who has reached pension age (employers still pay)
Do employers pay national insurance on employees who are under 21?
No as long as the earning doesn't exceed threshold limit of £50,000. Employee still pays.
What is Class 1A contribution?
This is national insurance paid on taxable benefits by employers, it is at the rate of 13.8% (employees don't pay this)
What is Class 1B contribution?
These are paid when an employer settles tax on behalf of an employee (PAYE settlement agreement). Paid on the value of the benefits and tax being paid by employed (gross up value of benefit). 13.8% and payment is due by 22nd october following end of fiscal year if pay electronically
What basis are Directors NIC calculated?
Always on an annual basis figure
What is the criteria of apprenticeship levy?
Employers who have an annual pay bill of more than £3 million.
What are other PAYE codes apart from L and K?
BR (All income from this employment is taxed at the basic rate)
NT (No tax is due on this income)
How are K codes derived
The K code is derived by taking the excess of benefits/adjustments over allowances, dropping the last digit and finally deducting 1 from this figure.
a negative allowance of £1000 becomes 100 then 99, k99.
How do employors operate the K code?
Employers are instructed to drop the letter and add a 9 to the end of the number.
Employers must submit payroll information to HMRC on or before the day payments are made to employees, how is this done?
This is done electronically using a Full payment submission (FPS) (filed as frequently as needed), at the end of year employer must submit final FPS indicating that it is the final submission of the year.
If no payments are made in the tax period then an Employer Payment Summary (EPS) should be submitted by the 19th of the following tax month.
What happens when PAYE is not accounted for?
HMRC will take steps to recover the tax from the employer or in certain cases, the employee. Daily interest is also payable from the reckonable date (22 April), HMRC may also levy late payment penalties of up to 100% of the amount unpaid.