Calculate employee wages and tax deductions
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There are few more onerous tasks expected of a small business than
the obligations which centre around employee wages and tax deductions. The complexities begin the first time you decide to employ someone.
As soon as you make this decision contact your local tax office, as the tax
office that deals with your company may not be the one that deals with the tax
of your employee. Employing people without registering them with the tax office
and attempting to evade your wage or tax obligations is a serious
offence. As an employer you are responsible for deducting tax and class 1
National Insurance contributions from your employee under the Pay As You Earn
system (PAYE). Then you will need to send the tax and National Insurance
contributions (NIC) you have deducted to Revenue & Customs Accounts
Office. As an employer you will need during the tax year to: - Deduct the correct amount of PAYE from your employees
salary
- Work out how much NICs you and your employees have to
pay
- Keep a record of your employees' pay, PAYE and NICs
due
- Make monthly (or quarterly) payments of the total PAYE and NICs
due to the Accounts Office
- If your employees are able to claim working families' tax
credit, disabled tax credit and student loan deductions you have to pay these
with your employees net pay. Tax credits are not subject to deductions of PAYE
or NICs. This has to be shown on your employee's pay slip
At the end of the tax year you must: - Send a Return to the Tax Office showing details of each
employee's total pay and the PAYE and NICs due
- Pay this over to the Inland Revenue Accounts Office each month.
This can be done quarterly if your average monthly payments of tax and NIC are
below £600
- Inform your tax office at the end of each tax year how much
your employee has earned and how much tax and NIC you have deducted, you must
also provide full details of any benefits paid such as private health insurance
etc.
- You must provide your employee who has paid PAYE or NICs and is
still working with you at the end of the tax year with statements showing their
earnings, tax and NIC deductions made and any benefits provided
Obviously this can all take a lot of time, one solution would be to
use a payroll agency which will complete a lot of the paperwork and day to day
administration for you. Otherwise software companies such as Sage and Intuit
have a range of payroll and accounting packages which save a lot of time and
can also handle other aspects of business accounting.
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