What makes up paye

The pay as you earn system is a requirement in the United Kingdom for all salary earnings, as well as other forms of compensation, if the earnings are expected to meet the National Insurance Lower Income Level. Pay As You Earn can be a helpful tool for individuals who have significant federal student loan debt but do not earn enough to meet their minimum payment without causing hardship.

PAYE loan repayment is based on how much the borrower earns an income-driven repayment plan. After 20 years, any remaining balance is forgiven. PAYE is one of a number of payment assistance programs:. Student Loans.

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If you are an employee, you normally pay tax through PAYE. PAYE ensures that the yearly amounts you have to pay are collected evenly on each pay day over the course of the tax year. You may be entitled to tax credits and to tax reliefs and exemptions to reduce the amount of tax you pay. If you are a PAYE customer, please see how to review your tax for any of the four previous tax years. Published: 11 May Please rate how useful this page was to you Print this page.

First time employees should register for MyAccount. MyAccount is a single online access point for Revenue services. It looks like you have JavaScript disabled. Certain parts of this website may not work without it. These dispensations have now been replaced by fixed exemptions. Common items covered by an exemption include:. This allows a single payment to be made to account for the tax on behalf of the employees.

Class 1B NICs are also due on both the underlying benefit and the tax paid. More information is available at www. Most other benefits are subject to tax and Class 1A NICs and are taxed on the basis of the cost to the employer, though some benefits have specific charging rules. For example, the charge on cars is calculated using a percentage of its list price that is determined by its approved carbon dioxide CO 2 emissions figure.

A fuel benefit charge is also incurred where fuel is provided to an employee for use in a company car. Where an employee is reimbursed for business travel in a company car, no tax arises where the rate of reimbursement does not exceed the rates provided by HMRC. These rates can be found at www. Where a loan is granted to an employee, this may taxed even if the loan is not especially advantageous to the employee.

Certain other exemptions also apply. HMRC provides a comprehensive guide to benefits at www. Small businesses can use simplified accounting to meet their tax record-keeping requirements.

See Simplified Accounting Taxation of Business profits section. Employers are required by law to keep records of pay, tax and National Insurance Contributions deducted. The information is recorded on a deductions working sheet form P11 or equivalent. The deductions working sheet can be maintained manually or electronically, although the introduction of RTI has necessitated the use of payroll software packages.

The deductions working sheet must be prepared at the start of each tax year, or when a new employee starts work. Each time during the year that the employee is paid, the details must be entered in the relevant columns on the deductions working sheet next to the tax week or month number for that in which the payment is made.

At the end of the tax year, the total boxes and end of year summary section should be completed. This information is used in completing the end of year returns. If payment is made electronically, it must reach HMRC no later than the 22nd of the month. If payment is made by post, the payment must reach HMRC by the 19th of the month.

Employers with or more employees must pay electronically. Interest is charged on payments made late. Small employers may make their payments to HMRC on a quarterly rather than a monthly basis. The tax quarters end on 5 July, 5 October, 5 January and 5 April.

The booklet is issued automatically by HMRC. Employers who have not received a booklet in time to make the first payment should contact HMRC. The penalty is a percentage of the PAYE paid late. The percentage that is charged depends on the number of times that PAYE has been paid late in a tax year. The first time that an employer fails to pay PAYE on time in the tax year is not counted as a default.

The penalty rate increases with the number of defaults in the tax year, as follows:. Penalties are not charged if HMRC accepts that the employer had a reasonable excuse for making the payment late.

The tax code reflects both the allowances available to the employee, such as the personal allowance, and any deductions from those allowances, for example to reflect tax underpaid in a previous tax year or to collect the tax due on a benefit in kind.

Tax codes are a combination of letters, numbers or both. Most follow the format of a number followed by a letter. The number is used to work the allowances due to the employee and the letter indicates how the code should be changed to reflect any Budget changes. A code in the form of a number followed by a letter is known as a suffix code.

As with suffix codes, the last digit is omitted to form the number element of the code. Code BR indicates that all income is taxed at the basic rate of tax, D0 means that all income is taxed at the higher rate of tax and D1 indicates that all income is taxed at the additional rate of tax.

Code 0T means that the income is taxed at the basic, higher or additional rates as appropriate without the benefit of any personal allowances. Code NT indicates that no tax is payable and the payment is made gross without the deduction of tax. Where an employee does not yet have a tax code, the emergency tax code is used.

This is based on the personal allowance for the year with the L suffix. For the emergency code is L. For , the rates and thresholds for Welsh income tax are the same as the standard UK tax rates and thresholds. A Scottish taxpayer is someone who lives in Scotland. The SRIT for is:. HMRC is responsible for identifying whether a taxpayer is a Scottish taxpayer, and a person who has been identified as such will be issued a tax code with an S suffix.

Although RTI necessitates the use of payroll software to work out pay and deductions and to report these electronically to HMRC, the payroll operations are essentially based around the use of tax tables and PAYE can be worked out manually using the tables.

Tax tables are available to download from www. Unpaid Class 2 NICs can now also be collected in this way. Below this level, a sliding scale applies as shown in the table below. Where a payment is made early because of a bank holiday or a weekend, the payment is treated for PAYE purposes as if made on the regular payment date, rather than on the actual payment date. The UK tax system is being digitised. Currently, software pilots are being undertaken for tax reporting.

It will be necessary for most businesses to use commercial software to account for tax to HMRC. It is also likely that free software will be available for small businesses.