PAYE, Payroll and Payroll Tax
What is PAYE?
PAYE - or 'pay as you earn' - refers to income tax which is deducted from your salary before you receive it. Introduced in 1944, this is now the way most employees pay income tax. The money is sent to HMRC by your employer ‘at source’ – meaning directly from your pay before it reaches your account. National Insurance and student loan repayments may also be deducted in this way.
The alternative way to pay income tax is self-assessment, whereby individuals complete a self-assessment tax return and normally pay tax once or twice a year.
How is PAYE calculated?
PAYE is calculated based on how much you earn and whether you're eligible for the personal allowance. The personal allowance is the amount you're able to earn tax-free each year. In 2021-22 it is £12,570 (it was £12,500 in 2020-21).
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Above the personal allowance, you’ll be charged at either 20%, 40% or 45% depending on whether you’re a basic rate, higher rate or additional rate tax payer. The rate you pay will be determined by your income.
source: https://www.which.co.uk/money/tax/income-tax/tax-codes-and-paye/what-is-paye-ac3jl5z72h2g - Which?
What is payroll and how does it work?
Payroll services are frequently hired by businesses for one or more of the following reasons: (1) when payroll becomes too complicated and time-consuming due to the sheer number of employees, or (2) when managers and owners decide that the time saved on payroll is better spent elsewhere, or (3) when there are technical accounting issues managing a payroll.
These circumstances frequently arise when a corporation wishes to raise income, cut expenditures, or achieve some other objective. Payroll service providers are employed to complete all of these responsibilities with the least amount of work. When a firm discovers that it is unable to handle payroll on its own, it may be prudent to delegate the task to someone who is capable of doing so.
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Payroll services include payroll calculations, payroll tax statements, deposits, and withdrawals for your employees, new-hire reporting, withholding, and pay garnishments.
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What is Payroll Tax?
Payroll tax is a tax that is assessed on an employee’s wages. Not every business has to pay payroll tax. You only have to pay it if your total wages exceed your state or territory’s tax-free threshold amount set out below.
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Payroll tax is generally lodged and paid monthly to your state or territory’s Revenue Office. You should also check with the Revenue Office if your business qualifies for a payroll tax exemption.
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