HMRC
Her Majesty’s Revenue and Customs (HMRC) is the main government department which administers the UK’s taxation system. It is the main source of information on the relevant facts and figures that a payroll department will need in order to run its payroll in a fashion that will satisfy all legal requirements relating the income tax, national insurance and other related matters.
THE FUNCTION OF PAYROLL
To remunerate the staff for the work they have done on the business’s behalf. Other statutory functions:
1) Dealing with deductions under the Pay As You Earn (PAYE) system 2) The payment of national insurance
3) The making of returns and contributions to HMRC 4) Calculation of sick pay and maternity benefits 5) Paying pensions due to former staff
WHAT IS PAYROLL?
Payroll is principally a means of paying the employees of a business for their contracted work. This involves:
1) The calculation of what each employee is due to be paid,
2) The deduction of all amounts required by law such as income tax and national insurance 3) The payment of amounts due to each employee after deductions have been made
4) The payments of amounts due to the appropriate government authority for the deductions made. Payroll is an essential business function because:
- Employees expect to be paid correctly and on time.
- HMRC expects to receive deductions for tax and national insurance correctly and on time
- The business needs to know the total costs paid to its employees and HMRC so that it can correctly measure how profitable or otherwise its business activity has been.
1. What is the main function of HMRC?
Her Majesty’s Revenue & Customs (HMRC) main function is to administer the UK’s taxation system and it is the source of information on the relevant facts and figures that a payroll department needs in order to run its payroll.
2. How does a Payroll Department contribute to the function of HMRC?
A Payroll Department will satisfy all legal requirements relating to income tax, national insurance and it will run its payroll in accordance with HMRC requirements.
3. What is the main purpose of a Contract of Employment?
The main purpose of a Contract of Employment is to clarify the requirements of the employer and the employee.
4. Which department within a business will normally be responsible for the production of a Contract of Employment?
The personnel Department (often known as Human Resources Department) is responsible with the Contracts of Employment within a business.
5. What will determine the number of staff needed in a Payroll Department?
The number of staff needed in a Payroll Department is determined by the size of the workforce, the complexity of the remuneration structure and how wages are paid; more staff will be needed if the calculation of pay rates is particularly complicated or if the wages are paid in cash.
6. Where will the Payroll Department normally get the correct information it requires each time it is preparing a weekly or monthly payroll?
Details of the employees will come from the Personnel Department and details about hours worked will come from the head of each department.
7. What is the main function of the HR Department in a business?
HR Department deals with all legal requirements relating to the employees and advice staff and managers on any changes in employment legislation or terms and conditions of their employment.
8. What would you define as being the main distinctions between and benefits of individuals who are classed as employed and those who are classed as self-employed?
An employee has certain legal rights in relation to the terms of their Contract of Employment and is covered by various pieces of employment legislation that the self-employed are not entitled to. A self-employed can claim certain business expenses against income and can pay tax due at a later date, which may bring advantages.
ASSIGNMENT 2
1. Monday to Friday total hours are: 8.5 + 7.5 + 9.5 + 8 + 9.5 = 43 hours per week 43-36 = 7 hours overtime
So:
36 hours @ £9.5 = £342 Overtime pay is:
9.50 @ 1.5 = £14.25 7 hours @ £14.25 = £99.75
GROSS PAY is: £342 + £99.75 = £441.75
2. Total units: 1,200+1,320+1,060+1,430+1,415 = 6425 10 units of 6425 = 642.5 642.5 @ £1.25 = £803.13 Bonus: 6425 – 5500 = 925 10 units of 925 = 92.5 92.5 @ £1.50 = 138.75
GROSS PAY is: 803.13 + 138.75 = £ 941.88 3. What does BACS stands for and what does it mean?
BACS stands for Bankers Automated Clearance Service and it is an automated method of payment into the bank account of each employee. The process involves a system known as BACSTEL and entails a file being transmitted down a telephone line. After the information is received it is processed within a certain timescale so that the employer knows when the file has to be transferred in order to have the funds available in the employees’ accounts on pay day. The system is a secure way of transferring pay directly into the employees’ bank account and minimises paperwork.
4. Why would a business issue its employees with pay statements/ payslips? What is the purpose of these documents?
A business will issue a payslip as a legal requirement and the purpose for it is to detail how the employee’s gross pay, deduction and net pay has been calculated. Having this statement the employee can query anything they are not sure about.
5. Basic Salary per year: £20,000
Basic Salary per month: 20,000: 12 months = £1,666.67 December Bonus: 1,666.67 x 0.15 = £250
Commission: (100,000 - 70,000) x 0.01 = 30,000 x 0.01 = £300 DECEMBER GROSS PAY: 1,666.67 + 250 + 300 = 2216.67
6. Richard:
Annual Salary: £18,000 Monthly Target: £10,000
Commission: 5% on all sales and 2% on sales in excess of £40,000 March Sales: £46,000
Monthly basic pay: 18,000: 12=1500
March Commission: (46,000x 0.05) + ((46,000-40,000)x 0.02) = 2300 + 120 = 2420 Monthly Gross Pay for March: £1500 + £2420 = £3920
Stephen:
Weekly pay: £1 for every 15 units produced
£1.25 for every 20 units produced in excess of 8500 units / week Week 1:
9600:15 = 640x £1 = £640
9600 – 8500 = 1100:20 = 55x £1.25 = £68.75 Gross Pay Week 1 is £640 + £68.75
Week 2: 8400: 15 = Week 3: Week 4: Jonathan: 48+42+46.5+50=186.5
Basic Pay: 37.5 x 4 weeks = 150 x £10= £1500
Overtime: 186.5 – 150 = 36.5 x (£10x 1.5) = 36.5 x £15 = £547.5 MARCH GROSS PAY: £1500 + £547.5 = £2047.50
The company will pay in wages/salaries: £3920 + £2892.47 + £2047.50 = £8859.97
