All details for PAYE (Pay As You Earn) can be obtained from HMRC website. However some essential points are mentioned as staff will have queries on general issues and the following should serve as a useful reference.
PAYE is the system that HM Revenue & Customs (HMRC) uses to collect income tax and national insurance contributions (NICs) from employees’ pay. The employer deducts income tax and NICs from employees’ pay each pay period (which could be monthly, fortnightly or weekly) and pays employers’ Class 1 NICs if they earn above a certain threshold. Employers pay these amounts to HMRC monthly or quarterly.
Employers should provide HMRC with details of payments made to employees together the tax and national insurance contributions deducted when or before the payments are made to the employee.
Employer will normally be sent a notice of coding (form P2) by HMRC each tax year in January / February. Your employer is told your code number but not how it has been calculated. This is important because it means that the employer is not able to check, if a code is correct.
It is up to the individual to check that the code is correct!
Overtime, bonus, ex-gratia payments
Overtime and Bonus will be regarded, as part of earnings and NI and Tax is due.
However, for ex-gratia payment (made for work not related to usual employment) is not liable for NI but liable for Tax.
Most PAYE codes have a number followed by a letter
• The number tells the employer how much tax-free pay you are allowed.
• The letters also have a specific meaning (see below)
The number tells the employer how much tax-free pay you are allowed (but please see special case for ‘K’ code below).
The last digit of your tax-free pay is removed to create the code (so a £8,105 personal allowance becomes the digits 810 in the code).
For example, if your code number is 240, you are entitled to tax-free pay of £2,400. Therefore, you can earn £200 each month (£2,400 divided by 12 months) before any tax is deducted. Any pay above that will be taxed.
Using the tax tables provided by HM Revenue and Customs, or an approved computer programme, your employer works out how much tax is due, deducts it from your pay, and pays the rest to you. The tax is paid over to the Tax Office.
‘L’ refers to the normal personal allowance for those under 65.
‘P’ refers to the normal personal allowance for those 65 to 74.
‘Y’ refers to the normal personal allowance for those 75 or over.
‘T’ refers to circumstances where there are other items that require HMRC to look at your tax code, for example the income-related reduction to the Personal Allowance for those with income above £100,000
The 810L code means that you are entitled to the full tax-free personal allowance for 2012/13 of £8,105. 810L is the right code for your main job in 2012/13, if you are under 65, don’t have any taxable benefits in kind from your employer (such as a company car or medical insurance) and have no untaxed sources of income or unpaid tax which is being collected through your PAYE code.
There are 5 sub-sections:
10.1 Software Packages
10.2 Tax and NI
10.3 Employer Annual Return
10.5 NHS Pensions
10.1 Software Packages
Every surgery will have a software package for Payroll and the package would be quite versatile and comprehensive in its application. The representative from the supplier company would train the PMgr about how to use the system – setting up weekly and monthly pay, PAYE codes, Pension payments – and would also show after the system calculates and inputs Tax, NI for both employee and employer contributions.
It is important that the staff data is input correctly at the outset and payroll set up for monthly pay. The rate per hour should also be input.
Each month it may take about 30 min. to prepare the payroll and get printouts of the salary for the month for each employee including the GPs.
P60, P45, P35, P14 and P11D all would be automatically computed, when the year-end approaches.
Payments to HMRC for Tax and NI Employer and Employee payments would be computed from monthly figures input.
All pension payments would also be computed and data sent to NHS Pensions Agency automatically.
Agency staff, temporary staff and locum staff details could also be input and various amounts calculated in the system.
Payroll packages work very well and rarely any problems were encountered; and even if it did, immediate help is always at hand from the software supplier.
10.2 Tax and NI
HMRC website gives the details for both employers and employees:
• Tax tables for monthly and weekly pay
• NI due on the income earned weekly or monthly.
Go to HMRC site
Select ‘Employers (blue)’ and ‘Employees (red)’
• In the new screen – Input PAYE Tables for the year e.g. 2014-15.
• New screen – Rates and thresholds for employers.
Current thresholds and rates are given for:
• Statutory Payments,
• Mileage payments,
• National Minimum Wage,
• Student loan repayments
• Maternity rates etc.
The PAYE software also calculates the NI for employer and employees contribution for the monthly salary received.
The Pay roll package used would automatically calculate and deduct NI payments but the PMgr should be aware of these details in the HMRC site.
Please take a print out, for each year, the tables pertaining to the staff, without naming the staff, adjacent to the appropriate figures – confidentiality issues.
10.3 Employer Annual Return
P35 and P14s
Employer Annual Return is due by 19 May following the end of the tax year and consists of:
• A form P14 for each of the employees
• P11 or equivalent record
• A form P35, which summarises, the end-of-year payroll totals for all the employees in the surgery.
Expenses and benefits: form P11D (b) must reach HMRC by the filing date of 6 July.
One gets a P45 from the employer when one stops working for them. It’s a record of one’s pay and the tax that’s been deducted from it so far in the tax year.
• Tax code and PAYE (Pay As You Earn) reference number
• National Insurance number
• Leaving date
• Earnings in the tax year
• How much Income Tax was deducted from one’s earnings
A P45 has four parts – Part 1, Part 1A, Part 2 and Part 3. Your employer sends Part 1 to HMRC and gives you the other three. When you start a new job, or claim Jobseeker’s Allowance, you give Part 2 and Part 3 to your new employer or to the Job Centre. You keep the remaining one – Part 1A – for your own records.
Your employer should automatically give you a P45 when you stop working for them. If not, ask for it – you’re entitled to it by law.
If you don’t have a P45 because, for example, you’re starting your first job or taking on a second job without giving up your other one, your new employer may give you a form P46 to complete.
It contains important information that affects the amount of tax you’ll pay, such as whether:
• This is your first job
• You’ve been claiming Jobseeker’s Allowance or Employment and Support Allowance
• You’ve got another job
• You’re paying off a student loan
Some employers may not give you a P46 to complete, but will ask you for the relevant information to allocate a tax code and work out the tax due on your first pay day.
HMRC will process the P46 or the relevant information passed on from your employer. It’s important that you complete the P46 or provide the relevant information your employer has asked you for as soon as possible before your first pay day, so your employer knows what tax code to use.
Your P60 is the summary of your pay and the tax that’s been deducted from it in the tax year. Your employer should provide you with a P60 to keep as a record at the end of every tax year (which runs from 6 April to 5 April the next year).
If your employer doesn’t give you a P60 at the end of the tax year, ask for it – you’re entitled to it by law if you are still working for the employer at 5 April.
Your employer uses a P11D to HMRC about the value of any benefits in kind they’ve given you during the tax year.
This means benefits or expenses that effectively increase your income, such as:
• A company car
• Private medical insurance
• Interest free loans.
Your employer will only declare them if you’ve earned at least £8,500 in the year, including the value of the benefits. They will work out how much each benefit is worth, record it on the form and send it to HMRC. They’ll also give you a copy, which you’ll need for your records or if you complete a Self Assessment tax return.
If you apply for a loan or mortgage, banks and building societies will accept a P11D as proof of extra income.
10.4.5 Lost P60
If you’ve lost your P60 your employer can issue you with a duplicate. Since 2010-11 your employer no longer needs to show on the P60 that it is a ‘duplicate’.
10.4.6 Completing a P46 if you’ve lost your P45
If you’ve lost your P45, you won’t be able to get a replacement. Your new employer may give you a form P46 to complete or ask you for relevant information to pass on to HMRC so that they can give you a tax code for your new employment.
Your employer doesn’t have to give you a copy of the P11D. But the law says they must tell you what details they’ve included on the form – even if you’ve left the job. It’s usually easier for them to give you a copy of the form when they send it to HMRC.
If you lose your copy, your employer should be able to let you have another one. If they can’t, ask HMRC for a copy.
10.5 NHS Pensions
For the standard pension calculator – NHS Pension Scheme (Amended 1 April 2008), please check web site for latest rates
When one retires from the NHS Pension Scheme (Amended 1 April 2008) one will get a pension and tax free lump sum.
The annual pension will be 1/80 of the best of your last 3 years pensionable pay for each year of Scheme membership.
Part years of membership will also count towards pension.
This will usually be paid for the rest of your life. The lump sum will normally be 3 times yearly pension, but married men with membership before 25.3.72 may get a smaller lump sum.
There are some limits on the amount of membership that can count for benefits.
• Not more than 40 years at age 60 if those years were worked before 1 April 2008
• Not more than 40 years at age 55 for special classes*
• Not more than 45 years altogether.
One cannot be a member if one had attained age 70 by 31 March 2008 or age 75 since that date** (65 for special classes):
*Special classes are Scheme members in certain employments who joined the Scheme before 6.3.95.
Pensions taken before normal retirement age – actuarially reduced pensions
If pension is taken before the normal retirement age (60 years old for most members of the NHS Pension Scheme, 55 years old for special classes), the pension and lump sum are reduced to take account of the fact they are being paid earlier than normal.
This reduction is called ‘actuarial reduction’ and is set by the Secretary of State on the advice of the Scheme Actuary.