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.
What is the Annual Accounting Scheme?
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.
What is the Cash Accounting VAT Scheme?
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
What is the Flat Rate Scheme of VAT?
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.
Would the purchase of equipment for running the business be posted to the purchase Day Book?
No, only items for resale are recorded therein. Equipment would be posted into a dedicated account for that purpose e.g. Office Equipment Account
By when must the VAT Return (Form VAT 100) be received by HMRC?
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.
What small check can be carried to see if the VAT form has been correctly filled?
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.
List the types of errors which will not be disclosed by Trial Balance.
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)
In journal entry, what kind of error is it when a transaction is missed completely?
Error of omission
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?
Error of principle
In journal entry, what kind of error is it when the wrong account has been debited or credited?
Error of commission/mispost.
In journal entry, what kind of error is it when figures are entered incorrectly?
Error of transposition/original entry.
In journal entry, what kind of error is it when posting have been made to the wrong side (credit and debit)?
Reversal of entries
In journal entry, what kind of error is it when two or more errors cancel each other?
Compensating error
