Topic 12 - Earnings Flashcards
who pays income tax or national insurance?
people who earn money from being employed or self employed
what happens with taxes or NI?
goes to the govt to spend on health pensions or benefits etc
definition of national minimum wage?
lowest hourly wage an employee can be paid
what is the minimum wage for those 23 years and older?
£10.42 known as the living wage
what is the maximum working hours
48 hours per week over 17 weeks
what is the most common weekly working hours?
38 and 40 hour a week
where does the maximum minimum wage not apply?
where 24hr staffing is require
- members of the armed forces
- emergency services
- domestic working in private households, like nannie’s
what are the 3 conditions regarding holidays and breaks?
- an employee who works 5 days a week is entitled to 5.6 weeks paid holiday
- employees are entitled to 1 day off per week
- if the working day is 6 hours employees are entitled to a break of 20 minutes rest
how does income tax work? (3)
- paid on earned and unearned income
- according to how much individual income is
- personal allowance of £12.5k is tax free
what are the 4 income tax bands called?
- personal allowance
- basic rate
- higher rate
- additional rate
What is the taxable income and tax rate of personal allowance?
up to £12,570
0%
What is the taxable income and tax rate of basic rate?
£12,571 to £50,270
20%
What is the taxable income and tax rate of higher rate?
£50,271 to £150,000
40%
What is the taxable income and tax rate of additional rate?
over £150,000
45%
What is a personal savings allowance?
Basic tax rate payers have £1,000 before they must pay income tax
What does NI stand for?
National Insurance
When must you pay NI contributions?
- between 16 years old and the state pension age
- earning more than a specified amount each year
When do you receive your NI number?
The months before turning 16
What does the number of years which you have been paying NI effect?
Entitlement to certain state benefits.
What does PAYE stand for?
Pay as you earn
How do employees pay income tax and ni contributions?
Their employer directly to HMRC
What system do self employed people use pay income tax and NI?
Self assesment.
What does ‘self-assesment consist of?
Completing income tax forms called tax returns
What are the 3 main 3 different documents?
- a payslip
- a P60
- a P45
When is a payslip produced?
Every time someone is paid
What is on a payslip?
- earning before and after deductions
- explain deductions
- how the wage is paid
How are payslips provided?
Paper or electronically
How does an employer work out how much tax to deduct from an employees earnings?
Tax code
What is the format for tax codes?
3 or 4 numbers and 1 letter.
What is a P 45?
A document prepared when an employee leaves an employer, summarising an employees tax and NI details
Where does a P45 go when someone does leaves a job without a new job to go to?
The job centre plus to calculate the benefits they’re entitled too
Where does a P45 go when someone has 2 jobs and leaves 1?
The second employer, who must calculate the new information
What does a P45 show? (5)
The employees
- tax code and PAYE
- NI number
- leaving date
- Earnings in the tax year so far
- income tax paid in the year so far.
Where do the 4 parts of a P45 go?
- old employer sends part 1 to HMRC
- employee keeps part 1A for their records
- employee gives 2 and 3 to their new employer or job centre plus
When does an employer issue a P60?
At the end of every tax year.
- on the 5th of April
What is on a P60?
Summary of the tax paid by the employer for the tax year that has just ended
When may an employee need to use their P60? (4)
- completing self assesment tax returns
- claim back overpaid income tax or NI contributions
- apply for tax credits
- apply for a loan or a mortgage
How are tax returns now done?
Online
When is the paper tax return deadline?
Midnight on 31st October
When is the online tax return deadline?
Midnight on the 31st January
What are the penalties for missing the deadline for completing and submitting the tax return?
- 1 day - 3 months: £100
- 6 - 12 months: £300 or 5% of the tax due, whichever is higher
- 12 months+ : up to 100% of the tax and £1k
How long should you keep your documents for?
22 months
