Inland revenue Paye returns tax pay national insurance scheme

Pay as you earn administration and maintaining payroll records is time consuming and all small businesses require a tax pay national insurance scheme. The inland revenue paye records are highly sensitive and must be scrupulously accurate since it may be inspected by the Inland Revenue and carries legal responsibilities to the employees. Payroll Software can carry the paye administrative burden and complete the paye returns.

Every employer has a legal responsibility to register with HMRC and operate the inland revenue paye scheme for its employees with regular payslips a P60 end of year certificate and a P45 showing details of gross pay and income tax deducted during the employment if you leave. If the employee does not have a P45 then the employee has to complete a P46 form. The paye system has to satisfy both the payroll requirements for each employee and the paye administration records required by HMRC.

Calculating gross pay is not difficult as the rates and hours are usually preset or subject to known information such as a timesheet for example. Maintaining the income tax national insurance scheme can present problems to employers inexperienced in payroll matters who are not familiar with the pay as you earn tax and national insurance scheme requirements. Payroll software automates the calculations of both the employee and employer income tax and national insurance contributions.

Each new employee joining a business must provide the employer with a P45 tax form which contains specific essential information that employer needs to start the paye system for that employee or in its absence a P46 form. The P45 form contains details of the employee name and address, previous earnings and income tax deducted by the previous employer since income tax is calculated on a cumulative basis throughout the financial year . The P45 also states the employee tax code and any special conditions that may have been in force such as an emergency tax code when employees are to be deducted income tax on a week one or month one basis rather than a cumulative basis. The pay national insurance scheme uses is not the cumulative pay but the pay in that pay period.

P45 details are required by the new employer to set up the payroll records for each employee. Rather than filing the P45 at the back of a drawer a payroll software solution adds discipline to this process and permits a permanent record to be kept which can prevent payroll administration issues becoming a problem in the future. Notes on scraps of paper get lost while paye administration details kept on a proper payroll software package rarely do and can be backed up as required.

The P45 tax form does not contain details of national insurance contributions because national insurance is calculated on a week by week or month by month basis. Previous deductions are not relevant while income tax deducted is relevant because income tax is deducted on a cumulative basis. Directors national insurance contributions are calculated on an annual basis.

Having established the employee records each pay period the employer needs to calculate the income tax and national insurance to be deducted. This can be done manually using look up tax and NI tables or the inland revenue paye HMRC CD-Rom or the employer can laboriously enter the employee and previous pay details into a paye calculator to obtain the information. Payroll software is a better choice by automating these calculations saving time and providing accuracy.

The paye system also requires the employer to keep accurate records of the breakdown of the calculation which are recorded on a P11 deductions working paper. This part of the paye administration is time consuming for many small employers while payroll software can automate this task saving hours of work during the year.

The employee payslip is highly important to employees which the employer has a legal responsibility to provide. Designing a payslip and ensuring it meets all legal requirements is much easier if a standard legally correct format is adopted as part of an automated payroll software system rather than manually running the paye system.

When an employee leaves they must be given a P45 tax form to take to their next employer and the paye system adopted must provide the information to complete the P45 accurately. It is a foregone conclusion that using payroll software to generate this information can ease paye administration and provide accurate information satisfying the legal requirements of the payroll system.

At the end of the financial tax year the administrative burden is increased if manual records are kept as the employer needs to produce a P14 showing the employee tax and NI deductions and provide each employee with a P60 certificate showing the employee gross pay and deductions. Payroll software can automatically generate the gross pay totals and the income tax and national insurance scheme contributions

The paye records must also produce the information for the P35 annual employer return showing the income tax and national insurance deducted from each employee and if an employer is operating a manual paye system then this task is often put aside and can lead to returns being filed late and incurring late filing penalties. With a payroll software solution the information is available immediately the final pay period has passed and the figures can easily be submitted online not only saving late penalty fines but also gaining a tax free online bonus. Using payroll software for the paye administration can not only save time and reduce the paye administration burden but save the employer money completing the returns tax national insurance forms required.


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