Second 7 And 8

Question 1

What is payroll?

Answer 1

The process of calculating and paying the money due to employees.

Question 2

What does payroll involve?

Answer 2

Calculating the amount earned (wages/salaries) by employees.

Calculating deductions to be made from pay of employees

Calculating employer oncosts.

Question 3

What is gross pay?

Answer 3

The pay to which an employer is entitled before any deductions

Question 4

What forms can gross pay take?

Answer 4

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

Question 5

What is Net pay?

Answer 5

Gross pay minus all deductions.

Question 6

How many, and what types of deductions are made from wages and salaries?

Answer 6

Two:

Statutory deductions

Voluntary deductions

Question 7

What are statutory deductions?

Answer 7

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)

Question 8

What is income tax?

Answer 8

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.

Question 9

What are National Insurance Contributions?

Answer 9

Similar to income tax but all contributions are collected by HMRC on behalf of the Department for Work and Pensions (DWP)

Question 10

When does the tax year begin and end?

Answer 10

April 6th to April 5th

Question 11

How long is the tax month?

Answer 11

4 or 5 weeks, each period ending on the 5th of each month

Question 12

When are gross pay deductions payments made to HMRC?

Answer 12

Payment is due 14 days after the end of the tax month = 19th of each month.

Question 13

What are voluntary deductions?

Answer 13

Deductions made at the employee’s request

Question 14

What do voluntary deductions include?

Answer 14

Pension funds

Charitable orgs (GAYE - Give As You Earn)

Saving Schemes (SAYE - Save As You Earn)

Trade unions

Internal club payments/subscriptions

Question 15

What are employer oncosts?

Answer 15

Costs related with having employees

Question 16

What are the most common sources of employer oncosts?

Answer 16

Employer national insurance contributions and pension fund payments which may be incurred by employers.

Question 17

What is the true cost of employment?

Answer 17

Gross pay plus any employer costs

Question 18

List the breakdown of the true cost of employment.

Answer 18

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

Question 19

What is the wages control account?

Answer 19

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.

Question 20

What is the difference between the Wages Control account and Wages Expenses (or Wages and Contributions) account?

Answer 20

The latter may include voluntary contributions.

Question 21

When must a business register for VAT (Value Added Tax)?

Answer 21

When its taxable turnover exceeds the VAT threshold i.e. £85,000.00 as of 2021

Question 22

How can a business register for VAT?

Answer 22

By downloading a form from the HMRC website and then posting it. It can also be done online.

Question 23

Where can the latest VAT rates and threshold limits can be checked?

Answer 23

www.hmrc.gov.uk/VAT

Question 24

What is the Standard Scheme of VAT?

Answer 24

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.

Question 25

What is the Annual Accounting Scheme?

Answer 25

A system that can only be used if the estimated turnover of the business does not exceed £1.35 million.
VAT is paid on account throughout the year in nine monthly or three quarterly instalments, with the instalments based on the VAT paid the previous year.
Only one VAT return is submitted at the end of the year: if the instalments fall short of the amount paid on account, the balancing figure is paid to HMRC; if the instalments exceed that amount, the balancing figure is claimed by the business.

Question 26

What is the Cash Accounting VAT Scheme?

Answer 26

A good option if the taxable turnover is £1.35 million or less.

Only actual payments and collections of VAT are accounted for.

Simplified records are sufficient and can be extracted from the cash Book

Question 27

What is the Flat Rate Scheme of VAT?

Answer 27

The simplest of all VAT schemes but only for taxable turnover of £150,000 or less per year. The business will pay a flat rate.
The business will not reclaim input tax because this is taken into consideration when calculating the flat rate.
The business still needs to show VAT charged on every sale but not the VAT paid on every purchase.

Question 28

Would the purchase of equipment for running the business be posted to the purchase Day Book?

Answer 28

No, only items for resale are recorded therein. Equipment would be posted into a dedicated account for that purpose e.g. Office Equipment Account

Question 29

By when must the VAT Return (Form VAT 100) be received by HMRC?

Answer 29

On or before the last day of the month following the VAT period to which it relates.

Penalties apply if this is not the case.

Question 30

What small check can be carried to see if the VAT form has been correctly filled?

Answer 30

Multiply the figures in boxes 6 and 7 by the standard VAT rate. The results should be within pennies of the values in boxes 1 and 2.

Only works for standard rate VAT.

Question 31

List the types of errors which will not be disclosed by Trial Balance.

Answer 31

Error of omission

Error of principle (category)

Error of commission/mispost (affects accounts with similar names)

Error of original entry/transposition (wrong amount entered)

Reversal entries(credit and debit side error)

Compensating error (errors which cancel each other)

Question 32

In journal entry, what kind of error is it when a transaction is missed completely?

Answer 32

Error of omission

Question 33

In journal entry, what kind of error is it when the wrong class or category (wrong account type e.g. assets instead of expenses) has been used to make entries?

Answer 33

Error of principle

Question 34

In journal entry, what kind of error is it when the wrong account has been debited or credited?

Answer 34

Error of commission/mispost.

Question 35

In journal entry, what kind of error is it when figures are entered incorrectly?

Answer 35

Error of transposition/original entry.

Question 36

In journal entry, what kind of error is it when posting have been made to the wrong side (credit and debit)?

Answer 36

Reversal of entries

Question 37

In journal entry, what kind of error is it when two or more errors cancel each other?

Answer 37

Compensating error