TUTOR IZABELA DRABIK. Introduction to Payroll System

Transcription

1 TUTOR IZABELA DRABIK Introduction to Payroll System

2 National Insurance Number ( NIN) The UK Tax Year Dates And Filing Deadlines The Payroll System Gross and Net Pay calculation The PAYE Payslips The PAYE forms Types of payroll software The Course Content HMRC recognised software RTI Tax Codes - numbers and letters Changes in Tax Codes Tax Allowances Different options for Tax Codes CIS Scheme Automatic enrolment The role of Payroll cycle in large organisations

3 National Insurance contributions is paid by you to qualify for certain benefits including the State Pension. National Insurance is paid if you re 16 or over and either: You are an employee earning above 157 a week self-employed and making a profit of 6,025 or more a year If you earn between 113 and 157 a week, your contributions are treated as having been paid to protect your National Insurance record. Overview

4 National Insurance Number (NIN) A purpose of having a National Insurance number is to make sure that the National Insurance contributions and tax are recorded against the exact name only. It s made up of letters and numbers and never changes. You can find your National Insurance number on your: payslip P60 tax return

5 National Insurance Classes Class 1 Employees earning more than 157 a week and under State Pension age - they re automatically deducted by your employer Class 1A or 1B Employers pay these directly on their employee s expenses or benefits Class 2 Self-employed people - you don t have to pay if you earn less than 6,025 a year (but you can choose to pay voluntary contributions) Class 3 Voluntary contributions - you can pay them to fill or avoid gaps in your National Insurance record Class 4 Self-employed people earning profits over 8,164 a year

6 Gaps in your National Insurance record Gaps can mean for the individual that he or she does not have enough years of National Insurance contributions to get the full State Pension (sometimes called qualifying years ). This could be because the individual were: self-employed but didn t pay contributions because of small profits employed but had low earnings unemployed and weren t claiming benefits living abroad

7 National Insurance rates If the individual is employed he pays Class 1 National Insurance Contributions Tax Year is between each year Current Tax Year is 2017/2018 The Class 1 NIN rates for most employed individuals for the 2017 to 2018 tax year are: 12% 2% 157 to 866 a week ( 680 to 3,750 a month) Class 1 NIN Rate12% Over 866 a week ( 3,750 a month) Class 1 NIN Rate 2%

8 Employee NIN Rates percentages Category letter 113 to 157 a week ( 490 to 680 a month) to 866 a week ( to 3,750 a month) Over 866 a week ( 3,750 a month) A 0% 12% 2% B 0% 5.85% 2% C N/A N/A N/A H 0% 12% 2% J 0% 2% 2% M 0% 12% 2% Z 0% 2% 2%

9 How do we pay for National Insurance Contributions? We pay National Insurance with our tax. Each employer will take NIN payments from our wages before we get paid. Our payslip will show clearly our contributions. The director of a limited company, may also be his own employee and pay Class 1 National Insurance through his PAYE payroll.

10 Paying less for Class 1 NIN The individual qualifies to pay less for Class 1 NIN if the circumstances are: she is a married woman or widow with a valid certificate of election he or she has a deferring National Insurance because they got more than one job

11 Contribution Rates Each employee s Class 1 National Insurance is made up of 2 contributions: deducted from their pay (employee s National Insurance) paid by their employer (employer s National Insurance)

12 What is a Tax Code and what does it mean to you? Tax Code is used by your employer or pension provider to work out how much Income Tax to take from your pay or pension. The code is worked out by HM Revenue and Customs (HMRC), who sends it to your employer or pension provider.

13 NUMBERS- these refer to how much income you can have before you pay tax Tax code is made up of: LETTERS - it refers to your situation and how it affects your tax-free Personal Allowance

14 Standard Tax Code for the tax year 2017/ L is the tax code for most people who have one job or pension and were born after 5 April refers to their taxfree Personal Allowance, 11,500, divided by 10

15 1 2 Tax code will change each tax year (6 April to 5 April the following year), usually because the Personal Allowance is increased. Tax code can also change for other reasons, eg if the employee starts or stops getting state benefits (including the State Pension) or company benefits like a company car. Changes in Tax Codes

16 The numbers in tax code tell the employer or pension provider how much tax-free income an individual gets in that tax year. This will be based on the Personal Allowance, which is the amount of income an individual can have before he/she pays tax. The number a tax code is used to work out your tax allowance as follows: Tax allowance = Number X 10. Tax Codes numbers explained

17 if the individual earns 20,000 per annum and a tax code is 747L then a tax allowance would be Example This is then deducted from the salary to determine the taxable income. For this example, the taxable income is 12,530.

18 Note on Tax Codes If a tax code is a letter K followed by a number, this means that the total allowances in the code are less than the total deductions to be taken away from allowances. In this case the number is added rather than deducted to determine the taxable income. For someone earning 20,000 with a tax code of K747 the taxable income would be 27,470

19 Self employed individuals pay Class 2 and Class 4 National Insurance This is depending on their profits. Most Self employed people pay both Class 2 and Class 4 National Insurance through Self Assessment. There are special rules for people with specific jobs (eg examiners or people who run businesses involving land or property) who don t pay Class 2 National Insurance through Self Assessment. Self-employed

20 Payments for Taxes if the person is both employed and self-employed A person might be an employee but also do selfemployed work. In this case his/her employer will deduct the Class 1 National Insurance from his/her wages, additionally he/she has to pay Class 2 and 4 payments for self-employed work. Payments will depend on his/her combined income from all jobs. HM Revenue and Customs (HMRC) will let the individual know how much National Insurance is due to be paid after filing Self Assessment tax return to them.

21 The UK Tax Year Dates And Filing Deadlines The tax year runs from the 6th April - 5th April. The accounts need to be calculated according to these dates. is the deadline for paying your Class 2 NIC(National Insurance Contributions. If the individual is also employed, he can choose to pay any tax due through his PAYE code, instead of making a big payment on 31 January, but only if he submits his tax return before 30 December. is when the second payment on account becomes due. 6 5 Apr. 30 Oct. 30 Dec. 31 July 6 Apr. 31 Oct. 31 Jan. The individual will start submitting his/her tax return on the first day of the next tax year 6th April. is the deadline for paper filing of tax returns is the deadline for online self-assessment filing. It is also the deadline for paying any income tax due, Class 4NIC and the first payment on account for next year.

22 Class 2- paid weekly 2.85 earnings equal to or more than 6,025 for the tax year 2017/18 Class 4 paid as 9% on earnings between 8,164 and 45,000 plus 2% if earnings are more than 45,000 National Insurance Taxes UK overview VAT Value Added Tax immediate registration if turnover is or more for the past 12 months Income Tax 20% payable on earnings more than personal allowance 11,500 for the tax year 2017/18

23 What is CIS? The Construction Industry Scheme (CIS) is a scheme created by HM Revenue & Customs (HMRC) for tax from contractors and subcontractors. The scheme is designed to minimize tax evasion within the construction industry.

24 To whom CIS applies? CIS applies to all contractors and subcontractors, whether sole traders, partnerships, or companies, who are working within the mainstream construction industry. CIS rules apply to all payments made by a contractor to a subcontractor under a construction contract, but does not apply to employees. Failure to comply with the Scheme may result in expensive penalties.

25 PAYE (pay as you earn) is a system where tax is deducted directly from your earnings or company/private pension before you receive any money. PAYE explained HMRC gives your employer or pension provider a tax code to show how much tax-free pay you should get each time you get paid tax is deducted from anything above this.

26 Gross Pay explained Wages and salaries (wages are based on an hourly rate, and salaries on an annual rate) Commissions Bonuses Shift differentials (a small additional amount paid to those working the second or third shift) Tips Sick pay Gross pay is the total amount of remuneration paid to an employee - the total amount of remuneration before taxes and other deductions are removed It is paid out through the payroll system. Piece rate pay Vacation pay Holiday pay

27 Net Pay Net pay comprises deductions that may be subtracted from gross pay social security medicare health insurance dental insurance life insuranc e pension contributions charit able contri butio ns.

28 Example of calculation Net Pay Mr. Smith works 40 hours at an hourly rate of 15, and earns an additional 1 per hour because he is working the second shift. He also works ten hours of overtime at timeand-a-half (which incorporates the 1 shift differential). Therefore, his gross pay is calculated as: Gross pay = 880 Base wages = 40 hours x 15 = 600 Shift differential = 40 hours x 1 = 40 Overtime = 10 hours x 24 = 240 If (for example) 20% were then deducted from the 880 of gross pay for income taxes, as well as 100 for medical insurance, the net pay would be 604.

29 Excel and payment calculation Employee Payroll Register spreadsheets can be designed for small businesses to be used by accountant in order to calculate the wages, depending on the size of a business and its policies, appropriate columns in excel may be added. The Employee Payroll Information worksheet is where an employer would record information like name, ID, address, sex, occupation, hire date, salary or wage basis, exempt status, personal allowances, and other information about current deduction and contribution. The Payroll Register worksheet is where an employer can keep track of the summary of hours worked, payment dates, taxes, and other deductions.

30 01 02 Who does not have a tax code number? Employees who earn more than 122,000 have no tax code and those who earn between 100,000 and 122,000 have their personal allowance tapered away. It is reduced by 1 for every 2 in excess of 100,000.

31 What is the "emergency" tax code for 2017/18? 1150L is the default code in use

32 Letters in tax code refer to the situation and how it affects Personal Allowance. L Entitlement to the basic tax-free Personal Allowance Tax Codes Letters explained M Marriage Allowance means that the individual received a transfer of 10% from his/her partner s Personal Allowance Y If the individual were born before 6 April 1939 or over and is entitled to the bigger full tax-free Personal allowance N Marriage Allowance a transfer of 10% of the Personal Allowance to the partner

33 T Your tax code includes other calculations to work out your Personal Allowance, eg it s been reduced because your income is over the amount for basic rate tax 0T Your Personal Allowance has been used up, or you ve started a new job and don t have a form P45, or you didn t give your new employer the details they need to give you a tax code Tax code Allowances explained BR All your income from this job or pension is taxed at the basic rate (usually used if you ve got more than one job or pension) D0 All your income from this job or pension is taxed at the higher rate (usually used if you ve got more than one job or pension) D1 All your income from this job or pension is taxed at the additional rate (usually used if you ve got more than one job or pension) NT No tax on this income

34 Different options in regards of Tax Codes The individual may have more than one tax code The main job is used to calculate the tax code and personal allowance. HMRC will automatically apply left over personal allowance (if any) to any other jobs or pension. HMRC can be contacted if the individual wants to change which tax code to use for main job.

35 National Minimum Wage rates change every October. National Living Wage rates change every April. The hourly rate for the minimum wage depends on the age and whether the employee is an apprentice. All other apprentices are entitled to the minimum wage for their age. The apprentice rate is for apprentice s aged 16 to 18 and those aged 19 or over who are in their first year. National Minimum Wage

36 Minimum Wage from April 2018 Year 25 and over 18 to

37 Statutory Pension Contributions and Automatic Enrolment Automatic Enrolment to the Pension Scheme is one of the key employer duties Employers must make arrangements so that their eligible jobholders become active members of an automatic enrolment pension scheme from their automatic enrolment date An mployer must automatically enrol any eligible jobholder working for them either from the automatic enrolment date, or from the end of the postponement period (where they have chosen to use postponement),

38 What is staging date? Staging date for every employer will be a date from when the automatic enrolment duties come into force for their business. Automatic enrolment is being staged in over a period of six years, which started with the largest employers in Staging dates are based on the size of an employer s PAYE scheme on 1 April 2012 the more people in the PAYE scheme at that time, the earlier the staging date. If you use more than one PAYE scheme, your staging date is based on the total number of people in the largest one that you use. Staging dates were determined based on the latest PAYE scheme information from HMRC held by us at 1 April If you made any changes to your PAYE scheme before this date, they may not be reflected in the data from HMRC

39 Who needs to enrol? Employees must be assessed for automatic enrolment based on their ages and how much they earn, regardless of how many hours they work FOR. Monthly gross earnings 490 and below Over 490 up to 833 From 16 to 21 Age From 22 to SPA* Has a right to join a pension scheme 1 Has a right to opt in 2 From SPA to 74 Weekly gross earnings 113 and below Over 113 up to 192 Over 833 Has a right to opt in Automatically enrol 3 Has a right to opt in Over 192 Figures correct as of 2017/2018. *SPA = state pension age

40 Has a right to join a pension scheme If they ask you to, you must provide a pension scheme for them, but you don t have to pay contributions. 2 Has a right to opt in If they ask to be put into a pension scheme, you must put them in your automatic enrolment pension scheme and pay regular contributions. Automatic enrolment explained 3 Automatically enrol You must put these members of staff in your automatic enrolment pension scheme and pay regular contributions. You don t need to ask their permission. If they give notice, or you give them notice, to leave employment before you have completed this process, you have a choice whether to automatically enrol them or not. It is against the law to try to influence the staff into opting out of your pension scheme.

41 How much do I and my employer have to pay? The minimum total contributions under automatic enrolment have been set down by the Government and are set to increase between now and April Qualifying earnings - these are earnings from the employment, before income tax and National Insurance contributions are deducted, that fall between a lower and upper earnings limit that are set by the Government eg earnings from employment can include wages or salary, commission, bonuses, etc.

42 If the employer decides to pay only the minimum amount, the minimum total contribution, as a percentage of the qualifying earnings is:

43 Automatic enrolment is being staged in over a period of six years, which started with the largest employers in Auto enrolment penalties for not compliance Staging dates are based on the size of an employer s PAYE scheme on 1 April 2012 the more people in the PAYE scheme at that time, the earlier the staging date. If you use more than one PAYE scheme, your staging date is based on the total number of people in the largest one that you use. Staging dates were determined based on the latest PAYE scheme information from HMRC held by us at 1 April If you made any changes to your PAYE scheme before this date, they may not be reflected in the data from HMRC.

44 Changes to state pension age The state pension age is currently 65 for men and it is gradually increasing for women from 63 to 65 currently The Government is planning further increases, which will raise the state pension age from 66 to 67 between 2026 and and 2028 Dec From December 2018, the state pension age will start to increase for both men and women to reach 66 by October 2020.

45 The essential roles and duties of any accounting department in the organisation should include the following: Money out making payments and keeping the bills paid Money in processing incoming payments Payroll make sure everyone gets paid (including the government ) Reporting preparing financial reports, e.g. P&L, Balance sheets and budgets Financial Controls to avoid errors, fraud and theft What are the Key Roles of the Accounting Department?

46 A payroll system involves everything that has to do with the payment of employees and the filing of employment taxes. What is a Payroll System? This includes keeping track of hours, calculating wages, withholding taxes and other deductions, printing and delivering checks and paying employment taxes to the government.

47 Human Resource Management(HRM) Is responsible for hiring personnel Advertises and assists in the selection process Facilitates location of people Is involved in personnel development and performance Employee discipline and terminations

48 What Are the Duties of a Payroll Officer? Payroll officer" is a general term used to describe the person who calculates and distributes payroll to employees. Some companies use other job titles, such as "Payroll Manager," "Payroll Clerk" or "Payroll Administrator," to describe the position. As a payroll officer, you are not responsible for determining or setting salary levels. Depending on the company, the payroll officer will issue payroll checks or make direct deposits to employee bank accounts.

49 Collecting Employee Information and Timesheets A payroll clerk gets detailed contact information from employees so payroll checks can be accurately calculated, distributed and deposited. This information usually includes a legal name, address, phone number and Social Security number for all employees, as well as bank account routing and checking numbers for employees who receive direct payroll deposits. Most hourly employees sign time sheets or punch into a timekeeping clock therefore the time sheets and punch cards have to be reviewed to calculate the total number hours worked in a given pay period. Pay periods range from daily to monthly, but most employers have a weekly or bi-monthly pay period(fortnightly).

50 HMRC Recognised software HMRC tests payroll software to check it can report PAYE information online and in real time (RTI). RTI is a new method of reporting payroll: employers report to HMRC in advance of making any salary or wage payments to employee.

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52 Online payroll types of software

53 Recording recording employees details Working working out employees pay and deductions The software will help with tasks like: Reporting Working Calculating reporting payroll information to HMRC working out how much the business needs to pay HMRC calculating statutory pay, eg maternity or sick pay

54 What is a payslip? Is a note given to an employee when they have been paid, detailing the amount of pay given, and the tax and insurance deducted.

55 Personal information - name and sometimes the home address will be shown. The payroll number - some companies use payroll numbers to identify individuals on the payroll. The date - the pay should be credited to the bank account is usually shown. Decoding the payslip The tax period -the number here represents the tax period for that payslip, for example if the employee is paid monthly, 01 = April and 12 = March. Payments, wages, bonuses, commission - show how much was earned in wages before any deductions are made. It might also show how the pay was calculated. It could also show any extra payments that have been earned on top of the basic pay like bonuses, commission or overtime. Tax code - will be sent to you by HM Revenue & Customs (HMRC) and if the code is wrong, the employee could end up paying too much or too little tax, so it should be checked against notification of the tax code. Expenses - expenses owing to you via the payroll. Some employers will itemise each expense payment separately on the payslip while others add the total amount together and show it as a taxable or nontaxable amount. National Insurance (NI) number - this is usually shown on the payslip. Everyone has to have an NIN. It is your personal number for the whole of the social security system. It s used to make sure all your contributions are recorded properly, and helps to build up your entitlement to state benefits like a pension. Deductions tax and National Insurance - the amount of variable deductions, like tax and National Insurance, and any contributions made to a workplace pension.

56 Pensions these are payments towards a workplace pension that the company has set up or arranged access to, the amount that is contributed will be shown. If your employer is contributing too, that may also be shown. Student loan If the employee is making repayments on a student loan, this will be shown on the payslip Court orders and child maintenanc e A court can order deductions directly from the pay, for example for unpaid fines or for debt repayments to be handed to the employees creditors Sick pay What is shown on the payslip will depend on how long the employee have been ill and the company s sick pay policy. The employer is liable to pay Statutory Sick Pay (SSP) if the employee is off work sick for four consecutiv e days. Maternity, paternity and adoption pay If you are a mother who isn t at work because you ve just had a baby and you re getting Statutory Maternity Pay (SMP), this will be shown on your payslip. Decoding payslips continued

57 Workplace benefits If an employee gets a health insurance through the workplace or have a company car, these will be listed on the payslip and can affect the tax code. Other deductions Any other deductions, like trade union subscriptions for example, should be shown. Summary of the year to date Some payslips will have a section which shows how much the employee has been paid so far in the financial year (from 6 April to 5 April). It might also show totals for how much he paid in tax, National Insurance, student loans and pensions. Net pay what s left The most important figure on the payslip for most people is their takehome pay. This is the amount you actually received once all the deductions have been made. This should be checked against the bank statement to make sure what is paid in is the same amount. Decoding payslips continued

58 RTI (Real Time Information) explained Under RTI all employers will require an internet connection and RTI enabled software. Employers with less than 10 employees may use HMRC's free software, however most commercial software is regarded as being easier to use. When the business decides to run the payroll it needs payroll software to report to HM Revenue and Customs (HMRC).

59 RTI will change the way you tell HMRC about new employees and people who are leaving your employment. You must now select Statement A, B or C when setting up an employee that comes to you Starters and leavers

60 Employee Statement A This is my first job since last 6 April and I have not been receiving taxable Jobseeker s Allowance, Employment and Support Allowance, taxable Incapacity Benefit, State or Occupational pension. B This is now my only job, but since last 6 April I have had another job, or received taxable Jobseeker s Allowance, Employment and Support Allowance or taxable Incapacity Benefit. I do not receive a State or Occupational Pension. C As well as my new job, I have another job or receive a State or Occupational Pension.

61 The PAYE forms P45 P60 P11D

62 A P45 is a form the employer gives to the employe e when he stops working for him. A P45 shows how much tax was paid on an employe es salary so far in the tax year (6 April to 5 April). A P45 has 4 parts (Part 1, Part 1A, Part 2 and Part 3). The employer sends details for Part 1 to HM Revenue and Customs (HMRC) and gives the employee the other parts. The employee gives Part 2 and 3 to his new employer (or to Jobcentre Plus if he is not working). It is good to keep Part 1A for own records. By law the employer must give a P45 to his employee What is a P45 form?

63 A P60 form shows the tax which was paid on the salary in the tax year (6 April to 5 April). If the employee is working for your employer on 5 April they must give a P60 to the employees. They must provide this by 31 May, on paper or electronically. You ll need your P60 to prove how much tax you ve paid on your salary, eg: to claim back overpaid tax to apply for tax credits as proof of your income if you apply for a loan or a mortgage A P60 form

64 An employer will send a P11D to HM Revenue and Customs (HMRC) if you get any benefits in kind (eg company cars or interest-free loans). The P11D records how much each benefit is worth. The employer will send HMRC a P11D if the earnings, including the value of company benefits, are at least 8,500 in the tax year (6 April to 5 April). The employer will usually gives a copy of the P11D to the employee. They don t have to by law, but they must tell the employee what s on it. A P11D form

65 Full Payment Submission (FPS) The Employer Payment Submission (EPS) E-submissions

66 The Full Payment Submission (FPS) is the main submission that you will make each time you pay your employees. This submission must be made on or before the date the employee is paid, and must be run after the Update Records process is complete. The submission will contain: - Starter and leaver information - Employee information such as name and address, NI number, tax code - Employee payment and deduction information Full Payment Submission (FPS)

67 The Employer Payment Submission (EPS) enables an employer to report figures to HMRC that can not necessarily be derived from the FPS and would affect the payments made to HMRC on a monthly or quarterly basis. Examples of the types of information submitted on the EPS are: Statutory Payments Recovered NIC Compensation on Statutory Payments Advance funding obtained from HMRC for tax refunds and statutory payments CIS Deductions Suffered NIC Holiday Employer Payment Submission (EPS)

68 Reports in payroll are documents that are generated from accounting records that have to do with the payroll of a business or company. The reports are normally structured to account for all payroll transactions for a specified period of time. Payroll Reports They may cover a single pay period, or include data relevant to longer periods, such as a quarterly or annual payroll.

69 Each business will indicate on either the final FPS or EPS that the submission being made is the final one for the tax year. End of year process under RTI Every payroll software retains an end of year process in the product that provides a standard routine to work to and a level of familiarity with the current year end process.

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