PAYE – Issues for Employers and Employees.
Many years ago the government of the day realised 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.
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 - make a late payment or forget to send off a particular return and you will be penalised.
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!
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. We provide a payslip calculator on our website.
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.
The key to maintaining a correct code number is to make sure that changes are notified to the tax office quickly.
How we can help.
We are trained to 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.
We can also provide human resource consulting and advise on recruiting and retaining staff.
If you would like to discuss any of the issues raised on this website, do get in touch. If you need a full payroll service then we are here to assist.
Printable 'Payroll (PAYE)' Page
