Employers are required to deduct any tax (PAYE) due from the taxable income of their employees. PAYE can be calculated on one of three bases, namely: cumulative, non-cumulative (period 1), emergency (further split between employees with and without a PPSN).
More detailed information on the PAYE system can also be found on Revenue’s website.
Calculating PAYE
All three tax bases make use of an employee’s tax credits and standard rate cut-off points. The tax rate applicable is determined by an employee’s cut-off point, and their overall liability is reduced by their tax credits.
Revenue determines an employee’s cut-off points and tax credits based on their personal circumstances and reflects this information in the employee’s P2C. If a P2C for a new employee has not yet been received, the information in the employee’s P45 (from their previous employment) should be used to do their PAYE calculations. In cases where no P2C or P45 is available, PAYE for the employee should be calculated on the emergency basis.
Employees on the emergency basis receive the standard single person tax credit and cut-offs, unless they do not provide their employer with a PPSN. If they do not provide a PPSN, they will be taxed on the emergency basis at the highest rate.
SimplePay calculates employees’ PAYE on the applicable basis depending on the tax information captured on the system. It is, therefore, important to ensure that your employees are correctly set up with all of the relevant information (PPSN, tax information and take-on balances) entered as soon as possible. More information on doing so can be found in the following sections:
Reporting PAYE
Employers must report and pay over their total monthly (or quarterly) PAYE liability to Revenue based on the P30. At the end of each tax year, a summary of the entire year’s liability is reported in the P35. SimplePay automatically generates both of these returns, as well as P60s and P45s, where applicable.