PAYE or Pay As You Earn is a tax imposed on people under employments. This tax system is operated by HM Revenue & Customs. It is the responsibility of the employers to administer their employees’ PAYE deductions and make payments to HMRC on due dates.
All the help you need in calculating income tax is available from HM Revenue & Customs in the form of tables, forms, advice, and software. The HMRC website published good information for employers’ references at www.hmrc.gov.uk.
Employees normally have to pay income tax on just about every payment you give them:
-
Wages
-
Overtime and shift pay
-
Bonuses and commissions
-
Statutory sick, maternity pay, paternity pay, and adoption pay Lump sums (such as redundancy payments} over and above any tax-free amount
-
Some cash expense allowances
Not all of the money an employee earns is taxable. The amount up to the personal allowance set by the tax authority is tax free. The personal allowance for a person under 65 is £6,475 for tax year 2009/10.
When an employee earns more than her tax-free amount the employer deducts tax from her pay at different rates. Table A shows the current income tax rates applicable to people under employment. Each employee’s own circumstances dictate how much income tax she has to pay. HM Revenue and Customs gives each of your employees a tax code each year show¬ing how much tax free earnings they're entitled to before you need to start deducting their tax contributions. When a new employee joins his P45 shows his current tax code.
Table A : Income Tax Rates
Tax rates
|
2009/10
|
2008/09
|
| Starting rate limit* |
£2,440
|
£2,320
|
| Tax rate* |
10%
|
10%
|
| Basic rate band |
£37,400
|
£34,800**
|
| Basic rate |
20%
|
20%
|
| Savings rate |
20%
|
20%
|
| Higher rate - taxable income over |
£37,400
|
£34,800**
|
| Higher tax rate |
40%
|
40%
|
| *Where taxable non-savings income does not fully occupy the starting rate limit, the remainder of the limit is available for savings income at the 10% starting rate. |
|
Personal allowance (PA
|
2009/10
|
2008/09
|
| under 65 |
£6,475
|
£6,035**
|
| 65 to 74 |
£9,490
|
£9,030
|
| 75 and over |
£9,640
|
£9,180
|
| Minimum |
£6,475
|
£6,035
|
| Blind person's allowance |
£1,890
|
£1,800
|
** Figures are based on the 13 May revisions to the original announcements made in the 2008 Budget.
Canterbury Accountancy - making paying employees simple for business
