PAYROLL COURSE SUMMARY

Transcription

1 PAYROLL COURSE SUMMARY Before you attempt assignment 9 we d recommend that you revise the following areas. This will also help with the retention of vital information in preparation for your Mock & final exams, which you ll complete following the computerised element of this subject. Personal allowance and Tax codes:- Refer to the Gov.uk website for information, guidance, rates and thresholds and tax and NI tables. The financial year runs from the 6 th April to the 5 th April with a tax month running from the 6 th to the 5 th of the next month. Basic rate tax is 20% increasing to 40% for income exceed 31,865 and 45% in excess of 150,000 The basic personal allowance is 10,000 The personal allowance increases for those born before 1938 and between The personal allowance is the amount an employee can earn before paying tax. BR code means Basic Rate. All of the employee s income will be taxed at the basic rate i.e. there will be no personal allowance. This is known as the emergency tax code. For individuals earning in excess of 100,000 the personal allowance will reduce by 1 for every 2 earned above 100,000. It is the employee s responsibility to ensure that their employer has the correct tax code for them. Tax codes can be found on either a P45 or coding notice from HMRC K Codes add an amount to the employee s wage. RTI:- The FPS used to notify HMRC of PAYE and national insurance deductions. Must be submitted on or before an employee s pay day. P11d/P9d - used to report expenses and benefits. Must be issued/submitted by 6 th July P60 - Issued at the end of the financial year detailing all of the employee s income and deductions. Must be issued before 1 st June EPS used to report recovered statutory payments or a reduction in the amount paid to HMRC. Also used for nil returns. Must be submitted by 19 th of the following tax month. A Cumulative report i.e. includes year to date totals. EYU used to correct errors. P45 Given to an employee on leaving employment. Must be given to new employer. Details employee s tax code.

2 New Starter Checklist - used for new employee s without a P45 or a P45 dated outside of the tax year. NATIONAL INSURANCE:- An employee and employer must make national insurance contributions. Those deducted under the PAYE scheme are known as class 1. Class 1a contributions relates to the national insurance liability against the employer in relation to benefits in kind. Employees must earn the basic lower earnings limit before national insurance can be deducted. This is known as the LEL (lower earnings limit). Employee s earning between the ET (earnings threshold) and the LEL will still be eligible for state benefits but not national insurance contributions. Some employers can claim 2,000 employer allowance against national insurance contributions. SSP:- An employee must establish a PIW before qualifying for SSP i.e. they must be sick for 4 or more FULL days. These do not have to be normal working days. Part days DO NOT count. Once a PIW has been established the employee won t be paid for the first 3 working days, these are known as waiting days. The weekly SSP rate will be divided by the number of normal working days in an employee s week to establish their daily rate. For example if an employee works 3 days it will be divided by 3, working 6 days it will be divisible by 6. Sickness periods separated by 56 days or less can be linked. The employee must still obtain a PIW first before linking can be considered. The advantage of linking is that the 3 waiting days do not have to be reserved i.e. they will be paid for these 3 days. You can check linking on the following link:- MATERNITY PAY:- SMP has two elements. Earnings related whereby the employee will be paid 90% of income for 6 weeks. Followed by the flat rate whereby the employee will received EITHER 90% of her wage or the statutory maternity pay rate whichever is LESS. SMP is available to all women whose average weekly earnings equal the LEL and has been continuously employed by her employer for at least 26 weeks into the qualifying week. Those not eligible for SMP can apply for Maternity Allowance.

3 EXPENSES & BENEFITS:- Directors and Employee s earning above 8500 in receipt of benefits will be subject to income tax over and above the amount of national insurance and tax taken under the PAYE scheme. The Employer will be liable to pay national insurance on these benefits. The Employee will only pay NI on benefits that can be converted to cash such as vouchers. P11d is used to report benefits for employee s earning in excess of 8500 P9d is used to report benefits for employee s earning less than Any contribution made towards the benefit by the employee is deducted from the taxable value as are unavailable days. The percentage used to calculate the benefit will depend on the CO2 emissions. The employee s personal allowance will be reduced by the value of the benefit. Fuel provided for personal use is also taxable and attracts class 1a national insurance. The figure set for 2014/15 is 21,700. The percentage used will be the same as the car benefit. Loans provided by an employer will form a benefit if the interest rate given is less than that set by HMRC. The value of the benefit is the difference between HMRC s rate and that given. DIRECTORS NATIONAL INSURANCE:- Directors can pay national insurance via to methods. Either the cumulative method/annual earnings period or the tables/alternative method. Cumulative method The director will not pay NI until they have earned the annual PT. The director s NI liability in each pay run is calculated on a yearto-date basis using the annual earnings thresholds. In each pay run, the director s total NI liability for the year is determined based on their earnings to date. The amount they ve paid to date in NI is subtracted from this to determine the amount they must pay in the current pay run. Table s method The director will have NI deducted in the same way an employee would on a monthly basis. Irrespective of the method used when making the final NI payment for the financial year you need to use the cumulative method. The director s earnings to date need to be considered against the NI paid to date to ensure that the correct amount of national insurance has been paid.

4 CIS:- For gross payment status sole traders must have a construction turnover (not including materials) of 30,000 For partnerships and companies the turnover must be 30,000 per partner/director. Sole traders report CIS via self-assessment Companies and partnerships report via a corporation tax return. CIS payments must be received within 14 days of the end of the tax month. I.e. for a month running from 6 th June to 5 th July, payments must be received by the 19 th July. To calculate deductions the contractor must deduct the following from expenses incurred by the subcontractor:- o VAT o Materials o Fuel (except fuel for travelling) o Plant Hire (not plant owned by the subcontractor) o Cost of manufacture or prefabrication of materials In short the deduction is taken on the value of labour which should include any costs for fuel relating to travel, subsistence and accommodation. For further CIS guidance: /cis340.pdf STUDENT LOANS:- Loans are not repaid until the student is earning in excess of either the monthly, weekly or annual threshold. The student will pay back 9% of the difference between their gross wage and the threshold. Student loans are not deducted before the payment of tax and NI. Pence are not included within the student loan deduction. NATIONAL MINIMUM WAGE:- The national minimum wage changes in October. For your exam you will be processing data for the start of the financial year i.e. April. It is important therefore that you use the national minimum wage if necessary for the previous October.

5 ASSIGNMENT 9 ALL ANSWERS RELATE TO THE 2014/2015 FINANCIAL YEAR Submit your answers to the following questions for marking. Make sure that you clearly identify your paper with your name and student number and the number of the assignment (i.e. Level III Diploma in Payroll Management, Assignment 9) and course Edition, i.e. Second or Third etc. IMPORTANT Please attach your workings, it helps us to point you in the right direction when things aren t quite right. 1) An employee earns 76,925 per annum. What rate of tax will he be required to pay on any benefits in kind? a) 20% b) 40% c) 45% d) 0% 2) Assuming a personal allowance of 10,000, how much tax will the above employee have to pay on income of 76,925? a) 26,770 b) 20,397 c) d) 22,397 3) An employee earning 24,000 born in 1942 with have which personal allowance? a) 10,500 b) 10,000 c) 10,660 d) 9,400 4) A business pays its employee s on the 30 th May. By which date must the FPS be submitted? a) 19 th June b) 31 st May c) 6 th June d) 30 th May

6 5) An employer needs to recover SMP payments, which form must be submitted? a) EPS b) FPS c) P45 d) EYU 6) An employee with no contractual sick pay working Monday Friday is sick from 13 th August returning to work on 28 th August. How much SSP will he be entitled to? a) 0 b) c) d) ) The same employee is sick again on the 4 th October returning to work on the 13 th. How much SSP will he be entitled to for the second period? a) b) c) d) 0 8) The same employee is off sick for a third and final time. The first day of sickness being 1st December returning to work on the 4 th. How much SSP will he be entitled to for the third period? a) b) c) 0 d) ) A director is paid 2,500 per month. In month 12 he receives a bonus of 4,000. What will be the final national insurance payment due for both the employee and the employer in month 12? Please use the national insurance tables.

7 10) An employee is given a company car for use throughout the financial year. The vehicle is diesel and has CO2 emissions of 176g/km. The cost of the vehicle is 25,000. The employee contributes 2,000 to the initial cost and makes a 50 per month contribution. The employee has a standard personal allowance. a) What will be the value of the car benefit? The same employee also receives free fuel for the vehicle. b) What will be the fuel benefit? c) What will be the employee s new tax code? d) How should this benefit be reported to HMRC? And by which date? 11) You need to check that a subcontractor is verified. Would you a) Check their turnover b) Ask for their Identification number c) Check references from other contractors d) Ring HMRC s CIS helpline 12) How do sole traders report their CIS deductions? 13) By what date must electronic CIS payments be received for a subcontractor paid on the 21 st August a) 31 st August b) 5 th September c) 19 th September d) 22 nd September

8 14) A Subcontractor submits the following invoice all of which he paid out for. What is the amount of CIS deduction that you would take from the following invoice: Labour Fuel for travel Materials Plant Hire Meals Total 20% Invoice Total 8, , ,700 2,340 14,040 a) 2808 b) 2340 c) 1660 d) ) What would be the student loan deduction for an employee earning 3,000 per month who had begun studying in 2011? 16) You are running the payroll for an existing minimum wage employee in July The employee is not an apprentice and is 18 years of age. What will be the hourly rate?