2nd Floor - 14 St.Peters Street - Ipswich - IP1 1XB
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Accountants
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PAYROLL ACCOUNTING SERVICES
Many years ago the government of the day realized that the most cost effective way to collect taxes due was to legislate and oblige employers to do the job for them - Pay As You Earn (PAYE) was born!
PAYE has an impact for both employers and employees, and we have covered some of the pitfalls to avoid in this page.
PAYE -
Employers
If you employ staff, you have obligations to the Inland Revenue. If you ignore these obligations, penalties and interest will soon be added to your employment costs!
Most penalties arise if you either:
• miss certain statutory deadlines for remitting tax and national
insurance you have deducted from your employees, or are late
submitting returns to the Inland Revenue. Unfortunately ignorance
is not bliss -
Employee Benefits.
If you provide employees with benefits, for example company cars and health insurance; be sure to watch out for the following:
• Identification is difficult - sometimes seemingly unrelated
expenditure can be classified as a benefit, for example excessive
staff entertaining.
• Benefits attract their own national insurance charge which has to be
paid by employers in July each year.
• Benefits have to be declared to the Revenue on specific returns
which must be submitted on time to avoid penalties.
Employers - other points of interest.
• Small businesses are able to pay their deductions quarterly rather
than monthly - this can help with cash flow especially for new
ventures.
• Employers have to make their own national insurance contributions
based on salary levels. This is added to tax and employees national
insurance deductions when paid to the Inland Revenue each
month/quarter.
Employees - make sure you only pay what you owe!
staff entertaining.
• Benefits attract their own national insurance charge which has to be
paid by employers in July each year.
• Benefits have to be declared to the Revenue on specific returns
which must be submitted on time to avoid penalties.
Employers -
than monthly -
• Employers have to make their own national insurance contributions
based on salary levels. This is added to tax and employees national
insurance deductions when paid to the Inland Revenue each
month/quarter.
Employees -
The tax deducted from your salary is calculated by taking away a proportion of your annual tax free allowance from your salary and applying the appropriate tax rate to the difference. Most payroll systems are quite adept at calculating the tax due, but they rely on the tax office to issue a correct code number to quantify your annual tax free allowance - this is the area where mistakes can be made and your tax bill increased unnecessarily.
Basically the higher your tax code the less tax you will pay, and visa versa. A few common errors are:
• Employers are sometimes slow in sending in details to the tax office
when new employees start. This can delay the issue of a correct
code number resulting in excessive tax deductions.
• Employees who change their company cars for lower taxed models,
or indeed stop using a company car will continue to be taxed based
on last tax years information, unless the tax office is informed.
• The tax office will sometimes seek to recover unpaid tax in earlier
years by reducing your tax code in the current year. This deduction
should always be checked to make sure the arrangement does not
duplicate other payments that you may have made directly to the
Inland Revenue.
• Employers are sometimes slow in sending in details to the tax office
when new employees start. This can delay the issue of a correct
code number resulting in excessive tax deductions.
• Employees who change their company cars for lower taxed models,
or indeed stop using a company car will continue to be taxed based
on last tax years information, unless the tax office is informed.
• The tax office will sometimes seek to recover unpaid tax in earlier
years by reducing your tax code in the current year. This deduction
should always be checked to make sure the arrangement does not
duplicate other payments that you may have made directly to the
Inland Revenue.
The key to maintaining a correct code number is to make sure that changes are notified to the tax office quickly.
We can advise our clients regarding all aspects of payroll preparation and compliance. In fact we can offer a complete payroll service if you would like to outsource this time consuming process.
If you would like to discuss PAYE or any of the issues raised on this website, or if you need a full payroll service then please do not hesitate to call us.
If you would like to discuss PAYE or any of the issues raised on this website, or if you need a full payroll service then please do not hesitate to call us.
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