| Employers and particularly new employers ask a | | | | after deductions and the perceived gross pay |
| variety of questions in administering the PAYE | | | | thereby enhanced. |
| scheme. The top questions and answers include | | | | As the income tax and national insurance |
| tax codes, week 1 basis, employee or self | | | | contributions may not be practically recoverable |
| employment status, national insurance, statutory | | | | from the employee and the calculation would be |
| sick pay and what happens when an employee | | | | applied retrospectively to previous years |
| does not provide a P45 from previous | | | | employment the cost to an employer can be |
| employment. | | | | considerable. |
| Employers and especially new employers who | | | | When should national insurance deductions be |
| may not be experienced with operating a payroll | | | | made from an employee? |
| system enter a business area with tax rules and | | | | National insurance must be deducted from all |
| procedures with which they may not be familiar. | | | | employees who are over the age of 16 and |
| The most common questions asked by | | | | under the state retirement pension age of 60 for |
| employers who are operating or about to operate | | | | a woman and 65 for a man. Equality of |
| a PAYE scheme are here | | | | employment does not apply to government |
| What is an income tax code? | | | | legislation on equality of employment between |
| An income tax code is a reference number which | | | | men and women where national insurance |
| may also include letters or be entirely letters | | | | contributions and pension payments are |
| which determines the amount of gross pay which | | | | concerned. |
| is free of income tax deductions and may also | | | | In addition national insurance should only be |
| determine the way in which income tax should be | | | | deducted from an employee wage or salary if |
| deducted. If the tax code contains a number this | | | | that income is at or above the national insurance |
| number represents the amount of tax free | | | | earnings threshold. The earning threshold usually |
| income an employee can earn in a financial year, | | | | changes each year and should be checked in case |
| for example 522L means an employee has a tax | | | | of doubt with the current tax thresholds |
| free personal allowance of 5,225 pounds. A tax | | | | applicable. |
| code of BR means all the employee gross pay | | | | What is the procedure when a new employee |
| should be taxed within the PAYE scheme at the | | | | does not have a P45? |
| basic rate of income tax. | | | | Ocassionally a new employee does not have a |
| What does week 1 of month 1basis mean? | | | | P45 containing details of previous gross pay and |
| Week 1 and Month 1 basis is an instruction to the | | | | income tax deducted in the financial year and the |
| employer operating a PAYE scheme to not | | | | new employer still has a responsibility to deduct |
| calculate the income tax on a cumulative basis | | | | tax and national insurance contributions from that |
| which is the normal basis but instead the | | | | employee and also advise the inland revenue of |
| employer has to calculate the income tax to be | | | | the employee tax status. A P46 must be |
| deducted on a non cumulative basis. A non | | | | completed and forwarded to HMRC in cases |
| cumulative basis is the total gross pay for that | | | | where a new employee does not have a P45. |
| week or month excluding any previous pay in | | | | Following receipt of the P46 the Inland Revenue |
| earlier pay periods regardless of whether that | | | | will notify the employer of the income tax |
| previous gross pay was paid by the current or a | | | | deductions to be made. |
| previous employer. | | | | In the period from when the employee |
| Because the income tax is deducted on the gross | | | | commences employment and notification of the |
| pay in a specific pay period an employee on a | | | | employee tax status is received the employer |
| week 1 or month 1 basis does not receive an | | | | should adopt a week 1 or month 1 status for that |
| income tax refund in respect of previous tax | | | | employee and also use an emergency tax code. |
| deductions. Normally an employee is placed on a | | | | The emergency tax code would be the standard |
| week 1 or month 1 basis when the tax | | | | personal allowance for that tax year. |
| deductions history for the current financial year | | | | Is a medical certificate required before statutory |
| are incomplete and the week 1 month 1 basis is | | | | sick pay payments are made? |
| removed when the missing history is determined | | | | It is advisable for an employer to obtain from an |
| Do I deduct income tax and national insurance if a | | | | employee written documentation of sickness. This |
| new starter says they are self employed? | | | | documentation can be in the form of self |
| The decision as to whether a worker is an | | | | certification which should be filed as part of the |
| employee or self employed rests with the | | | | PAYE administration. If an employee satisfies all |
| employer responsible for the PAYE administration. | | | | the conditions to receive statutory sick pay and |
| If that worker is determined to be an employee | | | | there is no reason for the employer to doubt the |
| then income tax and national insurance deductions | | | | claim then strictly speaking statutory sick pay can |
| must be deducted from payments made to that | | | | be paid without medical evidence. |
| employee. | | | | How as an employer do I fund working tax |
| Tax and national insurance are not deducted from | | | | credits? |
| workers designated as self employed. But it is not | | | | Working tax credits an employer may pay to an |
| as simple as that and any employer who has | | | | employee is deducted from the PAYE and other |
| doubts should clarify the position with the local | | | | deductions that employer has made and is |
| Inland Revenue helpline. Making the wrong decision | | | | payable to the Inland Revenue. Eligible deductions |
| can be expensive as strict rules are enforced. | | | | include deductions from employees in respect of |
| Several conditions are applied to determine if a | | | | income tax, national insurance, student loans and |
| worker is an employee or self employed and | | | | CIS deductions and employer national insurance |
| several years after that worker joined the | | | | contributions. If the deductions are insufficient to |
| business that can result in serious potential tax | | | | cover the tot6al working tax credit to be paid to |
| liabilities in the future. The inland revenue treat the | | | | an employee the employer can apply to the |
| employee status very seriously and have a | | | | Inland Revenue who will fund the shortfall. |
| number of parameters which they invoke in | | | | Why the employer is charged penalty fines when |
| doubtful circumstances to determine the status of | | | | the accountant submits the tax returns? |
| the worker as an employee rather than self | | | | Penalty fines are chargeable to the employer |
| employed. | | | | responsible for submission of the annual PAYE tax |
| When the status of a worker is determined by | | | | returns. The responsibility for submitting the tax |
| the tax authority to be employee and not self | | | | returns on time to avoid penalties may be |
| employed the employer will incur a liability for | | | | delegated by the employer to the accountant. |
| income tax and national insurance that should | | | | Arrangements between an accountant or |
| have been deducted from the employee and also | | | | bookeeper to submit tax returns online does not |
| a liability for employers national insurance | | | | remove the employers responsibility who would |
| contributions. The liability being increased as the | | | | be liable to a penalty fine by the tax authority if |
| Inland Revenue will determine that the amount | | | | the submission was late. |
| paid to the employee was a net wages payment | | | | |