Payroll & Taxation Unit 2

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Questions and Answers

What is the contribution rate effective from September 5th, 2016?

15.5%

13.5% (correct)

14.5%

12.5%

Who is primarily responsible for remitting the total contribution to NIBTT?

The insurance company

The employee

The government

The employer (correct)

In what ratio are contributions shared between the employer and employee?

1:1

4:1

2:1 (correct)

3:2

Which of the following must an employer maintain for their employees?

Pay records Signup and view all the answers

For which age group does no deduction of contributions occur?

Employees under 16 years Signup and view all the answers

What happens to an employer who fails to comply with contribution laws?

They face prosecution and fines Signup and view all the answers

Which factor is NOT considered when determining the deduction amount?

Total number of employees Signup and view all the answers

What is the consequence of deducting part of the employer’s contribution from the employee’s wages?

It is an offence punishable by law Signup and view all the answers

What is considered an insurable employee under the National Insurance Act?

A person working under a contract of services for at least $200 per week Signup and view all the answers

Why is the registration of employers and employees important for the NIBTT?

It helps maintain a sound database for benefit applications Signup and view all the answers

Which of the following is NOT a short-term benefit provided by the NIBTT?

Retirement Benefit Signup and view all the answers

What consequence can result from fraudulent registration with the NIBTT?

Rejection or revocation of registration Signup and view all the answers

Who must register with the NIBTT as an employer?

Any entity with at least one employee earning a minimum weekly salary Signup and view all the answers

Which benefit is categorized under long-term benefits?

Survivor’s Benefit Signup and view all the answers

What is a requirement for an employee to be considered insurable?

Earning $200 per week or more Signup and view all the answers

What type of workers does the NIBTT require to register as employers?

Any person employing apprentices or insurable employees Signup and view all the answers

What must happen to contributions in relation to the employer's assets?

They must be kept separate from the employer's assets. Signup and view all the answers

When are contributions due if an employee works only a few days in a week?

For each week or part of a week worked. Signup and view all the answers

What is the grace period for paying contributions for a month?

Up to the 15th day of the following month. Signup and view all the answers

What form should be filled out to request a contributions statement?

NI183 - Request for Contributions Statement Form Signup and view all the answers

What penalty does an employer face for failing to pay contributions?

$4,000 and six months imprisonment. Signup and view all the answers

How can contributions be paid at the service center?

Via cash, certified cheque, or manager's cheque. Signup and view all the answers

What should happen when an employee receives a retroactive salary increase?

Adjust contributions from the week/month the increase is paid. Signup and view all the answers

What is required from each employer when an employee has multiple jobs?

All employers must pay contributions on behalf of the employee. Signup and view all the answers

What must an employer provide to an employee within thirty days of termination?

A Termination Certificate Signup and view all the answers

What happens if an employer fails to issue a Termination Certificate?

They face a fine and possible imprisonment Signup and view all the answers

How much of their contribution share can an employee claim as tax relief?

70% Signup and view all the answers

What penalty is applied if contributions are not paid by the 15th of the following month?

25% penalty Signup and view all the answers

When does interest begin to apply on unpaid contributions and penalties?

After the 15th of the second month Signup and view all the answers

What is required for contributions to be considered in the highest earnings class?

Total contributions must be combined for the year Signup and view all the answers

What is the consequence for not forwarding the Termination Certificate to the NIBTT?

A fine of $4,000.00 and imprisonment Signup and view all the answers

In which scenario is the employer’s share of contributions tax deductible?

In its entirety as an operating expense Signup and view all the answers

Who is eligible to register under the given conditions?

Foreign employees on work permits Signup and view all the answers

What is the maximum period an employer has to register an employee if they do not provide their NI Number?

14 days Signup and view all the answers

What must an employee provide to their employer for registration?

All personal particulars on the NI4 application form Signup and view all the answers

How long does an employee have to inform their employer of their NI Number once registered?

28 days Signup and view all the answers

What happens if an unregistered employee ceases work before completing the NI4 form?

The employer completes the form based on personal records Signup and view all the answers

Which of the following is NOT a requirement for registration?

Providing proof of citizenship Signup and view all the answers

Who is exempt from registering according to the criteria laid out?

Persons involved in international diplomatic relations Signup and view all the answers

What is the purpose of submitting the NI4 Application form to the NIBTT Service Centre?

To register the employee for social security Signup and view all the answers

What is the percentage rate of income tax for individuals with chargeable income over TTD 1 million?

30% Signup and view all the answers

Which document is NOT required for self-employed individuals when applying for a BIR file number?

Proof of employment Signup and view all the answers

Who is responsible for deducting and remitting taxes for employees under the PAYE system?

The employer Signup and view all the answers

What is the chargeable income calculated from?

Gross Salary minus Allowances Signup and view all the answers

What is the purpose of obtaining a Pay As You Earn (PAYE) number?

To remit taxes withheld from employees’ earnings Signup and view all the answers

When can an employee file a tax return even if not legally required to do so?

If they are unhappy with tax deductions Signup and view all the answers

At what time of year is the filing deadline for tax returns typically set?

March or April Signup and view all the answers

What is a requirement for registering as a new employee with the BIR?

Providing their NI Number Signup and view all the answers

What is the increased annual personal allowance for individuals effective from January 1, 2023?

TTD $90,000 Signup and view all the answers

Which form is necessary for employees to ensure the correct amount of tax is withheld by their employer?

TD1 form Signup and view all the answers

What is NOT a valid deduction to reduce personal tax liability?

Personal savings investments Signup and view all the answers

When must an employee update their TD1 form?

Whenever their deductions or tax credits change Signup and view all the answers

For self-employed individuals, when is the deadline for filing tax returns?

The date set by the Inland Revenue Division Signup and view all the answers

Which document is issued by an employer that indicates an employee's effective date of employment and salary?

TD4 Certificate Signup and view all the answers

What are self-employed individuals required to do regarding tax payments?

Pay taxes quarterly based on calculated amounts Signup and view all the answers

What is the consequence for an employee if the TD1 form is not accurate or up to date?

Paying more tax than required Signup and view all the answers

What must be submitted to claim tax deductions for certain expenses?

TD1 form for approval Signup and view all the answers

Which of the following is NOT considered a supporting document for tax deductions?

Invitation to a wedding Signup and view all the answers

What is the first step in calculating total income tax based on a gross monthly salary of $10,000?

Calculate the Total Annual Income Signup and view all the answers

How is the Total Annual NIS payment calculated?

Weekly NIS payment multiplied by 52 weeks Signup and view all the answers

When submitting TD1 forms and supporting documents, which section should these be taken to?

Taxpayer Services Section office Signup and view all the answers

What percentage of the Total Annual NIS payment is used for the tax deduction calculation?

70% Signup and view all the answers

What type of evidence is required for claiming first-time home ownership tax deduction?

Sworn affidavit Signup and view all the answers

Which of the following is a legitimate expense that does not require approval from the Inland Revenue Division?

General business expenses Signup and view all the answers

What information is summarized on a payslip that an employee receives?

Gross wage or salary, deductions, and net wage or salary Signup and view all the answers

What is the primary purpose of a time card in a business setting?

To record attendance and calculate gross wages based on hours worked Signup and view all the answers

How is the double entry for recording wage payments typically structured?

Debit Wages or Salaries, Credit Cash or Bank Signup and view all the answers

Which of the following entries would be correct when statutory payments are made?

Debit national insurance payable, Credit cash or bank Signup and view all the answers

What is recorded on an individual record card for each employee?

Annual gross wage or salary, deductions, and net wage or salary Signup and view all the answers

What is the formula to calculate Chargeable Income?

Total Income - Total Tax Deducted Signup and view all the answers

How much is the monthly PAYE deduction based on a Chargeable Income of $20,381.84?

$424.62 Signup and view all the answers

What is the total tax deducted from Janet James's income?

$93,618.16 Signup and view all the answers

Which of the following represents the total annual income for Janet James?

$114,000.00 Signup and view all the answers

What percentage is used to calculate the tax on Chargeable Income?

25% Signup and view all the answers

Which document summarizes the gross salaries and total deductions for employees?

Payroll Signup and view all the answers

What is the ROUND total amount utilized in the calculation of PAYE deduction for Janet?

$5,095.46 Signup and view all the answers

What is included in PAYE deductions besides the government allowance?

National Insurance contributions Signup and view all the answers

What is the primary purpose of a payslip for an employee?

To summarize gross wage, deductions, and net wage Signup and view all the answers

How does a time card contribute to payroll management?

It helps in calculating gross wages for hourly-paid employees Signup and view all the answers

What is included in an individual employee's record card?

Yearly summary of gross wage, deductions, and net wage Signup and view all the answers

When wages are paid, what is the correct double entry to record the transaction for cash payments?

Debit Wages, Credit Cash Signup and view all the answers

What is the significance of statutory deductions reflected in payroll accounting?

They represent payments due to legal authorities at a later date Signup and view all the answers

How is the Total Annual Income calculated from a gross monthly salary of $8,000?

Multiply by 12 months Signup and view all the answers

What documentation is required to claim deductions for education expenses?

Evidence of acceptance to an educational institution Signup and view all the answers

Which of the following deductions requires approval from the Inland Revenue Division?

First-time home ownership Signup and view all the answers

What is the correct way to calculate 70% of the Total Annual NIS payment of $5,168.80?

$3,618.16 Signup and view all the answers

What should you submit if your tax deductions include expenses not listed for approval?

Supporting documentation to prove legitimacy Signup and view all the answers

Which of the following is included in the calculation of Total Annual NIS payments?

Weekly NIS payment Signup and view all the answers

Which document serves as proof of the income earned for tax deductions?

Pay slip from an employer Signup and view all the answers

Which hours are the Taxpayer Services Section open for submitting TD1 forms?

8:00 am to 4:00 pm, Monday to Friday Signup and view all the answers

What is the standard rate used to calculate PAYE deductions?

25% Signup and view all the answers

How is the Chargeable Income calculated for an individual with an annual income of $120,000 and total tax deductions of $93,618.16?

$20,381.84 Signup and view all the answers

What is the consequence of not calculating the PAYE deduction correctly?

The employer may pay employee’s tax. Signup and view all the answers

During which process is the payroll created?

When salaries or wages are regularly paid Signup and view all the answers

What is the main function of a payslip in the payroll process?

To detail the employee's gross pay and deductions Signup and view all the answers

How much is the monthly PAYE deduction for an individual with a tax on Chargeable Income of $5,095.46?

$549.62 Signup and view all the answers

Which record is NOT typically maintained in payroll records management?

The employee performance review Signup and view all the answers

What is the calculation for the total annual income of an employee earning $9,500.00 per month?

$114,000.00 Signup and view all the answers

Study Notes

Benefits of National Insurance

Short-term benefits include Sickness, Funeral Grant, Maternity Benefit, and Special Maternity.
Long-term benefits cover Retirement, Invalidity, and Survivors.
Employment Injury benefits encompass Medical Expenses, Disablement, and Death Benefit.

Registration Process

Registration with NIBTT generates a unique Registration Number for Employers and Employees.
Legal requirement facilitates efficient processing of benefits applications.
Establishes a sound database of employers and insured persons.

Insurable Employment

An insurable employee earns at least $200 per week under a contract of services.
Employers include any person or entity employing at least one insurable employee.

Mandatory Registration

Employers hiring at least one person must register within 14 days.
All employees earning $200 or more per week must be registered.
Registration applies to both paid and unpaid apprentices.

Exemptions from Registration

Individuals earning less than $200 per week are exempt.
Non-citizens exempt under international conventions or social security agreements are also excluded.

Registration Deadlines

Employees must provide their NI Number within 7 days.
Employers must register employees within 14 days if NI Number is not provided.
Employees must be informed of their registration status within 21 days.

Employee Registration Procedure

Unregistered employees need to complete the NI4 form with personal details within 7 days.
Employers submit completed NI4 forms to the NIBTT Service Centre within 14 days of employment.

Contribution Payments Structure

Contributions are calculated based on wages and structured into 16 earning classes.
Rates are set at 13.5% of assumed average weekly earnings (from September 5, 2016).
Payment responsibility is shared: 2/3 by the employer and 1/3 by the employee.

Consequences of Non-compliance

Employers failing to register or make contributions face fines and potential imprisonment.
Mandatory record-keeping for each employee, including full name, NI Number, and contribution records.

Contribution Payment Due Dates

Contributions due each week based on the employee's work, including apprenticeship and probation.
For monthly salaries, due dates reflect the number of Mondays in that month.

Requesting Contribution Statements

Individuals can request contributions statements using the NI183 form at NIBTT service centers.
Updates on personal information can be submitted using the NI165 form.

Penalties for Non-payment

Employers failing to pay contributions may face a fine of $4,000 and additional fines per outstanding employee.
Penalties apply if contributions are not paid by the 15th of the following month.

Payment Methods

Contributions are payable via Cash, Certified Cheque, or Manager’s Cheque at district service centers.
Personal cheques accepted up to valid bank card limit.

Retroactive Salary Increases

Adjustments to contribution classes apply from the week of any retroactive salary increase payment.

Handling Multiple Employment

All employers must contribute for employees with multiple jobs, with total contributions determining the highest earnings class applicable for the employee.

Termination of Employment Procedures

Employers must provide a Termination Certificate within 30 days, detailing earnings and contributions.
Certificate must be sent to NIBTT on the same day it is issued to the employee.

Tax Relief

Employer contributions qualify as operating expenses, tax-deductible in full.
Employees can claim 70% of their contributions as tax relief.

Interest on Late Payments

Contributions and related penalties not paid by the 15th of the second month incur 15% interest on the total due.

Income Tax Overview

The Pay As You Earn (PAYE) system requires employees over 17 to pay income tax based on their chargeable income.
Chargeable income is calculated by subtracting allowances from the Gross Salary or Wage.

Who Pays Income Tax?

All individuals earning income must pay income tax and a health surcharge, requiring a Board of Inland Revenue (BIR) file number.
Employees have taxes deducted by employers, while self-employed individuals must file an annual tax return.
Individuals with chargeable income under TTD 1 million face a 25% tax rate, while those over TTD 1 million are taxed at 30%.

BIR File Number and PAYE Number

All employees and businesses must register for a BIR file number for tax payments and filing.
A PAYE number is mandatory for companies and sole traders employing staff to remit withheld taxes.

Required Documents for Tax Registration

Self-employed individuals need a Certificate of Registration and identification documents, while employees need proof of employment and income.

Significant Legislative Changes

As of January 1, 2023, the annual personal allowance for income tax increased from TTD 84,000 to TTD 90,000.

Reducing Tax Liability

Employees should complete a Tax Declaration 1 Form (TD1) to ensure accurate tax withholding.
Self-employed individuals must file returns quarterly, documenting deductions and expenses.
Deductions allowed include tertiary education expenses, home ownership, annuity contributions, and alimony payments.

Approval for Deductions

Certain deductions require approval from the Inland Revenue Division via the TD1 form.
Supporting documents are needed to substantiate other deductible expenses.

Calculating Income Tax

Calculation examples for monthly salaries detail a step-by-step process involving total annual income, NIS payments, chargeable income, and PAYE deductions.
The example specifically mentions the calculations for a gross monthly salary of TTD 10,000 and the resulting PAYE deduction.

Payroll Records

Key payroll records include the payroll sheet, payslip, and individual record card, essential for tracking employee payments and deductions.
A payroll summarizes total salaries, deductions, and net earnings; payslips provide detailed paycheck information to employees.

Time Cards

Time cards are used to track employees' hours to determine payroll for hourly workers and assess attendance.

Accounting Entries

Standard entries for salary payments involve debiting wages/salaries and crediting cash or bank.
For statutory deductions, additional credits are made for payments due to legal authorities.

Statutory Payments

Upon making statutory payments, appropriate entries must debit the respective payables (e.g., national insurance) and credit bank or cash.

Payslip Overview

A payslip is provided alongside salary payments, summarizing payroll details including gross wage, deductions, and net salary.
Payslip format varies by company, allowing employees to verify payment accuracy.

Individual Record Card

Each employee has a personal record card that tracks their annual payroll data, including gross wages, deductions, and net salary.
Information is regularly updated each time an employee is paid.