What is PAYE?
Pay As You Earn – PAYE – is a system designed to collect tax directly from earnings or pensions throughout the tax year. PAYE involves three separate parties, the employee, the employer (or pension provider) and HM Revenue and Customs (HMRC).
In the majority of cases, tax may be deducted using PAYE. How often tax is deducted of course depends on how employees or pensioners are paid – for employees and the majority of pensioners it is almost always weekly, monthly, four weekly or fortnightly; however, some pensions are only paid quarterly or even annually.
How it works…
HM Revenue and Customs will:
- Work out the employees’ personal tax code
- Provide a PAYE coding notice (a P2 form), if required, illustrating exactly how they calculated the tax code. In cases where HMRC are not actually obliged to issue a coding notice, one may still be requested
- Pass on employees’ tax codes to their employer or pension provider (but not tell them how it was calculated)
After which, employers or pension providers use tax codes to calculate how much tax to deduct from an employee’s wages or pension. They will then make regular tax payments (and National Insurance contributions, where appropriate) to HMRC.
PAYE must be applied to all payments that an employee receives, including the following:
- Wages and salary
- Overtime pay, shift pay and even tips
- Expenses – claims and allowances
- Commission and any bonuses
- Statutory Sick Pay
- Statutory Maternity, Paternity and Adoption Pay
- Lump sum payments and any compensation paid
Employers use personal tax codes alongside HMRC’s taxable pay tables, and calculate the amount of tax to be deducted from each employee. If a new employee doesn’t have a P45 form, they will be required to complete a Starter Checklist questionnaire (very similar to the now obsolete P46).
All in all, organising an efficient PAYE system can be something of a headache, which is why many people seek help from a registered accountant.
How an accountant can help
New HMRC legislation regarding payrolls requires that businesses provide accurate PAYE reporting. With our years of experience, dedicated team of highly skilled accountants and all of the relevant accounting tools, Dyer & Co can help you with your PAYE reporting. In order to make sure that you fulfil the legal requirements for PAYE reporting, we can:
- Ensure your business has an up-to- date and wholly accurate payroll reporting system
- Take care of tax filing and auditing for your business
- Provide expert advice and affordable services
- Offer PAYE code review
- Work out if CIS and IR35 apply to you
- Take the stress out of PAYE record maintenance and submissions
- Apply an organised, systematic approach to your PAYE reporting
We can help you regardless of the sector you work in. Our accounting services are created and designed to support all businesses. Whether you require record keeping, VAT registration, reporting or any other VAT and PAYE services, give us a call at Dyer & Co today and speak to one of our team of experts to find out how we can help you.