STARTING IN BUSINESS – PART 3
I would like to take this opportunity to wish all those in business or about to open a business a Very Happy Christmas and a Prosperous New Year.
We covered Value Added Tax in Part 2, so now to PAYE/PRSI:
General Information:
The tax year for PAYE/PRSI is the same as the calendar year, starting 1st January and finishing 31st December.
You can run a Weekly, Fortnightly or Monthly payroll and this must be decided at the beginning of the year.
Tax Credits and Standard Cut Off Point Certificate:
This certificate outlines the employee’s tax credits and standard rate cut-off point. Both allowances are shown with an annual, monthly and weekly rate.
The rate applicable will depend on whether the employee is paid weekly or monthly.
The employee and employer will both receive a copy of this certificate at the beginning of every year.
The employee’s copy is a detailed copy of the tax credits.
It is the employee’s responsibility to ensure that the tax credits are correct.
The certificate received by the employer merely gives the total amount of tax credit and standard rate cut-off.
Definitions:
Tax credit. A credit against your final tax bill.
Standard Rate Cut-Off Point. Earnings up to this point are taxed at the lower rate of tax. Earnings above this point are taxed at the higher rate of tax.
Gross Pay. Earnings prior to tax.
Net Pay Earnings after tax.
Lower tax rate 20 %
Higher tax rate 41%.
Pay As You Earn System (PAYE)
This is a simple example to show the basis principles behind the PAYE system.
Gross Pay €300.00
Tax Credit €30.00
Standard Rate Cut Off €250.00
Calculation:
Gross Pay €300.00
€250 @ 20% €50.00
(€300 – €250) @ 41% €20.50
€70.50
Tax Credit €30.00
Tax Deductible €40.50
Cumulative System
The previous example is very straight forward, but the PAYE system can be quite complex because PAYE is calculated on a cumulative basis.
I hope you found the above information useful. Our next article will look at PAYE in more detail and cover PRSI. Should you have any queries or feedback please contact me via our email info@sraccouting.ie or visit our website at www.sraccounting.ie