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Tax Processes For Businesses > Principles Of Payroll > Flashcards

Principles Of Payroll Flashcards

1
Q

Describe gross pay

A

Amount that employee has earned before any deductions.

Might be expressed as an hourly rate or a weekly, monthly, or annual amount.

One-off amounts such as a bonus may be expressed as a lump sum.

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2
Q

What may gross pay include?

A
  • Basic pay
  • Overtime
  • Commissions
  • Bonus payments
  • Holiday payments
  • Sick pay
  • Maternity/paternity pay
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3
Q

Describe taxable gross pay

A

Taxable gross pay is gross pay minus any tax-free deductions (elements not subject to income tax).

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4
Q

What are 2 elements included in the tax-free deductions from gross pay?

A
  1. Employee pension contribution - tax relief on this to encourage people to save for retirement.
  2. Payroll giving - tax relief given on charitable donations made through this scheme to encourage charitable giving.
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5
Q

Define net pay

A

Amount that the employees will receive that period, after all deductions have been made.

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6
Q

Define statutory decutions

A

Deductions that are required by law and mandated by UK legislation

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7
Q

Define non-statutory decutions

A

Voluntary deductions, usually agreed upon between the employer and the employee (typically through a written agreement).

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8
Q

What are 4statutory deductions that businesses are required to take from gross pay?

A
  1. Pay As You Earn (PAYE) - System used to collect income tax from employees and pay it over to HMRC. Amount of tax deducted depends on employee’s taxable income and tax code.
  2. National insurance (NIC) - Deducted from an employee’s gross pay based on earnings and NIC category. They are a form of social security contribution that goes towards NHS and other social welfare programs.
  3. Pension contributions - employers are all required to have a workplace pension scheme/occupational pension scheme. % of pay deducted and paid into scheme.
  4. Student loan repayments - if employee has one and earns above a certain threshold, deductions may be made from their gross pay to repay the student loan.
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9
Q

What is employee’s NIC sometimes referred to as?

A

Class 1 Primary NIC

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10
Q

Describe 3 non-statutory deductions

A
  1. Payroll giving - charitable donations deducted from gross pay sent to registered charity of choice.
  2. Staff loan repayments - employer might offer a loan scheme where employees can borrow a sum of money from them and pay it back from gross pay.
  3. Trade union fees - if an employee is a member of a trade union, they may choose to have their union subscription deducted from their gross pay to support their union’s activities.
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11
Q

Since deductions come out of the employee’s gross pay, they ___ ___ form an additional cost to the ___.

A
  • Do not
  • Employer
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12
Q

What is the total expenses suffered by the business?

A

Gross wages

Employer’s National Insurance (NIC) (after any employment tax has been deducted)

Possible Employer’s Pension

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13
Q

Describe the employment allowance

A
  • The employment allowance allows employers who meet certain eligibility criteria to claim a reduction in their NIC liability.
  • Introduced as an incentive for businesses to hire staff.
  • It’s deducted from the employer’s NIC owed to HMRC.
  • Only used against EMPLOYER’S NIC, not against other payroll taxes.
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14
Q

What are the 4 elements which make up the total liability owed to HMRC?

A
  • Employee income tax (PAYE) deducted from gross wages
  • Employee NIC (deducted from gross wages)
  • Employer NIC (after any employment allowance has been deducted)
  • Student loan repayments from gross wages
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15
Q

The net wage paid to staff will be…

A

Total gross wages earned by staff, less:
- PAYE (Employee income tax)
- Employee’s NIC
- Employee pension contributions
- Any other deductions, e.g., student loan repayments.

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16
Q

What are 4 documents the employer is required to provide to employees?

A
  1. Payslip
  2. P60
  3. P11D
  4. P45
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17
Q

Describe payslips

A
  • Issued every pay day
  • Includes gross pay, deductions and net pay for period, no. hours worked if pay is based on hours worked.
  • Deadline - supply to each employee on or before payday.
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18
Q

Describe P60

A
  • Issued annually
  • Includes summary of total gross pay, deductions, and net pay for tax year
  • Supplied to each employee by 31 May following end of tax year.
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19
Q

Describe P11Ds

A
  • Issued annually
  • Details of any taxable employment benefits or expenses
  • Send to HMRC and a copy to employee by 6 July following end of tax year.
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20
Q

Describe P45s

A
  • Supplied when an employee leaves their job
  • Includes tax code, gross pay, and deductions to date
  • No longer required to be sent to HMRC but a copy is provided to the employee for their records
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21
Q

Pay meant the ___ ___ ___ amounts from the employee’s payslips for the year

A

Taxable gross pay

22
Q

Tax deducted means the total ___ ___ for the year.

A

Income tax

23
Q

If an employee has paid too much income tax in a previous year…

A

They may be entitled to a tax refund, indicated by an ‘R’ in the tax deducted box.

24
Q

P60 diagram

A

Top half of P60 details Pay and Income tax for the relevant tax year (6th of April to 5th of April). If you were previously employed in the same year, that would be included.

Bottom half of P60 details NIC for the tax year, ONLY relating to the employee’s current employer.

25
What does 'earnings for NI' mean?
Amount of gross pay that is subject to NI. The total of the 3 earning figures should agree to the employee's total gross pay for the year.
26
Employee pension contributions and payroll giving donations only attract tax relief against...
Income tax, not NI. Therefore these are not deducted when calculating earnings for NI.
27
What are 3 common benefits employees might receive?
1. Company cars 2. Private medical cover 3. Non-business travel/entertainment
28
Describe the taxation of employee benefits/expenses
- Employee needs to pay tax on these benefits, so the employer must report the relevant values to HMRC on a P11D form. - The employee will be taxed on that value via PAYE. - The employer also pays NI on these benefits, this is called Class 1A NIC.
29
HMRC (the relevant tax authority for tax) require businesses to comply with:
- Regulations about registration - Record keeping - Submission of returns - Payments of amounts due
30
Describe the regulations about registering as an employer with HMRC
- Individuals/businesses that employ staff are required to register as an employer with HMRC (including individuals who employ themselves as directors of owner-managed companies). - Employers need to register BEFORE THE FIRST PAYDAY, and it can take UP TO 5 WORKING DAYS for HMRC to issue an employer with a PAYE reference number. - You CANNOT register MORE THAN 2 MONTHS before you start paying people.
31
What records should be kept regarding payroll?
- Gross pay and deductions - Taxable benefits or expenses - Reports and payments made to HMRC - Employee leave and sickness absences - Tax code notices - Payroll giving scheme documents
32
When does tax year end?
5th of April each year
33
Employers can either pay a ___ ___ to operate the payroll for them or do it themselves using ___.
- Payroll provider - Software
34
When choosing a piece of software, employers should check that it can...
- Record employee details - Calculate employee pay and deductions - Calculate employer's NIC - Report payroll information to HMRC - Calculate statutory pay, e.g., maternity or sick pay.
35
It would also be useful if the software can...
- Produce payslips - Calculate pension contributions - Pay people over different periods, e.g., weekly or monthly.
36
What is Real Time Information (RTI)?
You should use your payroll software to electronically report details of staff pay, deductions, and employer's NIC to HMRC every time staff are paid.
37
Describe the Full Payment Submission (FPS)
Details of payments to and deductions from all employees are reported to HMRC. Should be sent to HMRC ON or BEFORE you employee's payday. Additional info may need to be included on the report if someone joins, leaves, or retires.
38
Describe the Employment Payment Summary (EPS)
A report for non-regular claims and adjustments such... - If no employees have been paid this month - If they wish to reclaim statutory amounts such as maternity or paternity pay. - If they wish to claim back the Employment allowance. EPS needs to be sent by the 19TH OF THE FOLLOWING TAX MONTH for HMRC to apply any reduction (e.g., statutory pay) on what you owe from your FPS.
39
Describe the tax month
Starts on the 6th and ends on the 5th of the month
40
HMRC has one set of powers covering VAT, payroll, and other taxes. These powers enable them to ask for ___ and ___.
Information and documentation. They can ask to visit the business premises to conduct a tax inspection.
41
How do late payment of monthly/quarterly payments penalties get applied?
Applied to all employers regardless of number of employees. They are based on number of defaults in a tax year and unpaid tax bill. They also apply to underpayments.
42
Describe penalties for late payments of amounts due annually or occasionally
These penalties apply to taxes that are settled in a single payment, such as Class 1A and 1B NIC. They are based on how late the payment is. Daily interest will continue to build up on all unpaid amounts from the due and payable date to the date of payment.
43
Employers can keep the following data about their employees without their permission:
Name Address Date of birth Sex Education and qualification Work experience NI Number Tax code Emergency contact details Employment history w organisation Employment terms and conditions Accidents connected w work Training taken Any disciplinary action
44
Employers need their employee's permission to keep certain types of sensitive data including:
- Race and ethnicity - Religion - Political membership or opinions - Trade union membership - Genetics - Biometrics, e.g., fingerprint used for identification - Health and medical conditions - Sexual history or orientation
45
Employee has a right to be told..
- What records are kept and how they are used - The confidentiality of the records - How these records can help w their training and development of work
46
If an employee asks to find out what data is kept on them, the employer will have ___ ___ to provide a copy of the information.
30 days`
47
Describe the Data Protection Act (2018)
UK's implementation of the General Data Protection Regulation (GDPR)
48
What are the 7 broad principles of data protection (GDPR)
1. Info must be processed lawfully, fairly, and in a transparent manner. 2. Used for the declared purpose only. 3. Limited to the data needed for the declared purpose 4. Accurate and up to date 5. Not kept for longer than necessary 6. Held securely 7. Accountability - the Data Controller is accountable for compliance
49
When recruiting staff, you should only ask for information that you need on ___ ___. DON'T ask for ___ ___ at this stage.
- Application forms - Bank details
50
Staff can ___ if they think info is being misused and you could be ordered to ___ a ___ or ___.
- Complain - Pay a fine or compensation
51
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Tax Processes For Businesses (10 decks)

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