Second 7 And 8 Flashcards
What is payroll?
The process of calculating and paying the money due to employees.
What does payroll involve?
Calculating the amount earned (wages/salaries) by employees.
Calculating deductions to be made from pay of employees
Calculating employer oncosts.
What is gross pay?
The pay to which an employer is entitled before any deductions
What forms can gross pay take?
Wages (usually paid weekly according to the number of hours worked)
Salaries (paid monthly to salaried staff)
Piecework (pay based on output)
Overtime (normally an enhanced rate of pay for working extended hours)
Shift pay (pay to compensate for unsociable hours)
Bonuses and commissions
What is Net pay?
Gross pay minus all deductions.
How many, and what types of deductions are made from wages and salaries?
Two:
Statutory deductions
Voluntary deductions
What are statutory deductions?
Deductions that an employer has to make by law from the gross pay of the employee.
These comprise: income tax (PAYE -Pay As You Earn)
National Insurance (NICs)
What is income tax?
All wages and salaries of employees are liable to Income Tax. Whether or not they pay income tax, and the amount they pay, depends on the amount they earn and their personal tax allowance ( which can be offset against the amount earned).
Income tax deducted from pay must be paid over periodically by the employer, on behalf of the employee, to HMRC.
What are National Insurance Contributions?
Similar to income tax but all contributions are collected by HMRC on behalf of the Department for Work and Pensions (DWP)
When does the tax year begin and end?
April 6th to April 5th
How long is the tax month?
4 or 5 weeks, each period ending on the 5th of each month
When are gross pay deductions payments made to HMRC?
Payment is due 14 days after the end of the tax month = 19th of each month.
What are voluntary deductions?
Deductions made at the employee’s request
What do voluntary deductions include?
Pension funds
Charitable orgs (GAYE - Give As You Earn)
Saving Schemes (SAYE - Save As You Earn)
Trade unions
Internal club payments/subscriptions
What are employer oncosts?
Costs related with having employees
What are the most common sources of employer oncosts?
Employer national insurance contributions and pension fund payments which may be incurred by employers.
What is the true cost of employment?
Gross pay plus any employer costs
List the breakdown of the true cost of employment.
Net pay - paid directly to the employee (take home pay)
Employee income tax - paid to HMRC by the employer on behalf o the employee
Employee NICs - same as income tax
Employee Pension Fund Contribution
Employee other voluntary contributions
Employer national insurance contribution
Employer pension fund provider
What is the wages control account?
It’s a control account for wages payments.
Total amounts payable go in this account.
The payable amounts are credited and the actual payments are debited.
What is the difference between the Wages Control account and Wages Expenses (or Wages and Contributions) account?
The latter may include voluntary contributions.
When must a business register for VAT (Value Added Tax)?
When its taxable turnover exceeds the VAT threshold i.e. £85,000.00 as of 2021
How can a business register for VAT?
By downloading a form from the HMRC website and then posting it. It can also be done online.
Where can the latest VAT rates and threshold limits can be checked?
www.hmrc.gov.uk/VAT
What is the Standard Scheme of VAT?
Based on the accruals system, with VAT being paid quarterly.
Output tax is regarding VAT collectible on all goods and services supplied.
Input tax is regarding VAT payable on all goods and services purchased.
