The Payroll and PAYE operation is fundamental to all businesses. This includes companies where there is only employee i.e the company director/shareholder. Through expert tax planning even a self employed individual with no staff can save significant amounts of tax by folllowing our advice.
PAYE is a method of collecting tax from employees during the course of the year. For the vast majority of employees the tax collected will be the amount they are due to pay for any one tax year. However, this is not always the case and some employees, mainly company directors, those receiving employer provided benefits and those with a second employment or a pension may find at the end of the year they have an underpayment or overpayment of tax.
The cornerstone on ensuring the correct amount of tax is deducted is the PAYE coding notice. These notices can never be guaranteed to be 100% accurate as they are often based on historic information. To avoid any material inaccuracies with tax being paid as you go and thus assisting personal cash flow is to ensure the correct PAYE code is in use.
Agents no longer receive PAYE tax codes showing the detail of the allowances granted and restrictions imposed and these should be checked as soon as they are received and if there is any uncertainty, advice should be taken and the code corrected as soon as possible. In addition, any change in circumstance such as the receipt of a new source of income or pension should also be a trigger for considering, in detail, the tax code with corrective action taken as necessary.
With the advancement in computer technology HM Revenue & Customs are taking full advantage and are imposing more burdens on the employer in respect of penalties for late payment of monthly or quarterly PAYE and have now introduced “real time” returns (RTI) of employee deduction details, with the system now in full operation.
Real Time Information (RTI) is similar to the scheme operated by employers who are required to make returns under the construction industry scheme. The new scheme has replaced the need for an annual return (P35) as each tax month an employer will be required to make a return of the pay and deductions made. This is to ensure that the correct PAYE & NI is accounted for at the right time.
Furthermore, the information submitted each month by the employer will be made available to the Department of Works and Pensions (DWP) so that they may operate the Universal Credits system based on accurate levels of earnings.
Should you have any queries on PAYE coding notices or RTI submissions, please do not hesitate to contact a member of the team.