Small companies and businesses in the UK are required to collect income taxes and national insurance contributions on behalf of the UK tax authority from their staff. This tax collection scheme is known as PAYE scheme. PAYE stands for Pay As You Earn.
How staff income tax is work out?
Staff income tax is calculated based on the income tax rates provided by HMRC as shown in Table A.
Take your staff gross salary or wages minus his/her personal allowance entitlement and this leave you with the taxable income. Assuming you are working out income tax deduction for the tax year 2009/10, the first £2,440 of the income is taxed at 10% and subsequent income up to £37,400 is taxed at 20% and thereafter is taxed at 40%.
Personal allowance entitlement is the amount of tax free income your staff is allowed to claim and the tax code given by HMRC normally reflect the tax free amount claimable by your staff for a tax year based on his/her age and personal circumstances. Table B shows personal allowances for different age group individuals.
Table A: Income Tax Rates
| Tax rates |
2011/12 |
2010/11 |
2009/10 |
2008/09 |
| Starting rate for savings |
£2,560 |
£2440 |
£2,440 |
£2,320 |
| Tax rate |
10% |
10% |
10% |
10% |
| Income up to |
£35,000 |
£37,400 |
£37,400 |
£34,800 |
| Basic tax rate |
20% |
20% |
20% |
20% |
| Income over |
£35,001 |
£37,401 |
£37,401 |
£34,801 |
| Higher tax rate |
40% |
40% |
40% |
40% |
| Income over £150,000, tax @ |
50% |
- |
- |
50% |
*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.
Table B: Personal Allowance (PA)
| Age group |
2011/12 |
2010/11 |
2009/10 |
2008/09 |
| Under 65 |
£7,475 |
£6,475 |
£6,475 |
£6,035 |
| 65 to 74 |
£9,940 |
£9,490 |
£9,490 |
£9,030 |
| 75 and over |
£10,090 |
£9,640 |
£9,640 |
£9,180 |
| Minimum |
£7,475 |
£6,475 |
£6,475 |
£6,035 |
| Blind person's allowance |
£1,980 |
£1,890 |
£1,890 |
£1,800 |
Other Deductions
In addition to deducting income tax from your staff pay you must also deduct national insurance contributions.
Ask Accountants To Take Care Your Payroll
Small businesses and growing companies normally outsourced their payroll processing function to their accountants as it is not worth their time and effort to learn complex income tax computations for a small number of staff.
Benefits of giving your payroll processing task to your accountants are that they are on top of the changes to the PAYE and income tax law. They tell you what are the latest changes and what you can do and cannot do as employer. In addition, they prepare pay slips for your staff, tell you how much to pay over to HMRC every month and file PAYE forms to tax office for you.
Concise Accountancy offers payroll services to limited companies. Feel free to contact our accountant to discuss your staff payroll requirement, they will be more than happy to help you and provide you the complete payroll solutions.
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