Module 6 PAYE and NIC

Question 1

What is Pay as you earn?

Answer 1

PAYE is a system used to collect tax from employment

Question 2

How are taxable non-cash benefits taken?

Answer 2

The tax due is collected from cash remunerations and Personal allowance is reduced by the net amount to reflect this.

Question 3

Does the PAYE code affect personal allowance in the tax computation?

Answer 3

No, PAYE code only tells the employer how much tax to deduct at the source.

Question 4

What PAYE code is for negative personal allowance?

Answer 4

K code is for negative personal allowance however this is capped at 50% of the amount of actual cash remuneration on pay day.

Question 5

PAYE is cumulative in nature?

Answer 5

True - when calculating tax, it is the cumulative tax that is being calculated.

Question 6

When does an employer need to pay tax and NIC to HMRC?

Answer 6

Within 17 days of the end of each tax month.

Employers whose payments do not exceed an average of £1500 can pay quarterly instead of monthly.

Question 7

Late payments of Tax and NIC attracts interest?

Answer 7

True

Question 8

What is a P60?

Answer 8

P60 is given before 1st of June by 31 May following end of tax year and it shows an employees total taxable emoluments payable for the year and total tax deducted.

Question 9

What is a P45?

Answer 9

P45 is given to employees who leave a business and is given to new employer for PAYE calculations

Question 10

What is Class 1 primary contribution

Answer 10

This is national insurance paid by employees on their employment income and other cash earnings (bonus)

Question 11

What is class 1 secondary contribution?

Answer 11

This is national insurance paid by employers on their employees income

Question 12

Who doesn’t pay National insurance?

Answer 12

Under 16s (no liability for employer) or employees who has reached pension age (employers still pay)

Question 13

Do employers pay national insurance on employees who are under 21?

Answer 13

No as long as the earning doesn’t exceed threshold limit of £50,000. Employee still pays.

Question 14

What is Class 1A contribution?

Answer 14

This is national insurance paid on taxable benefits by employers, it is at the rate of 13.8% (employees don’t pay this)

Question 15

What is Class 1B contribution?

Answer 15

These are paid when an employer settles tax on behalf of an employee (PAYE settlement agreement). Paid on the value of the benefits and tax being paid by employed (gross up value of benefit). 13.8% and payment is due by 22nd october following end of fiscal year if pay electronically

Question 16

What basis are Directors NIC calculated?

Answer 16

Always on an annual basis figure

Question 17

What is the criteria of apprenticeship levy?

Answer 17

Employers who have an annual pay bill of more than £3 million.

Question 18

What are other PAYE codes apart from L and K?

Answer 18

BR (All income from this employment is taxed at the basic rate)

NT (No tax is due on this income)

Question 19

How are K codes derived

Answer 19

The K code is derived by taking the excess of benefits/adjustments over allowances, dropping the last digit and finally deducting 1 from this figure.

a negative allowance of £1000 becomes 100 then 99, k99.

Question 20

How do employors operate the K code?

Answer 20

Employers are instructed to drop the letter and add a 9 to the end of the number.

Question 21

Employers must submit payroll information to HMRC on or before the day payments are made to employees, how is this done?

Answer 21

This is done electronically using a Full payment submission (FPS) (filed as frequently as needed), at the end of year employer must submit final FPS indicating that it is the final submission of the year.

If no payments are made in the tax period then an Employer Payment Summary (EPS) should be submitted by the 19th of the following tax month.

Question 22

What happens when PAYE is not accounted for?

Answer 22

HMRC will take steps to recover the tax from the employer or in certain cases, the employee. Daily interest is also payable from the reckonable date (22 April), HMRC may also levy late payment penalties of up to 100% of the amount unpaid.

Question 23

What is the employment allowance?

Answer 23

This is available as a NIC reduction for employers on class 1 secondary playments by up to £3000 per tax year.