Payroll & Taxation Unit 2

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.

Time Cards

• Employees may use time cards, which they "punch" to record their arrival and departure times.
• Time cards help calculate hourly wages and assist in monitoring attendance and punctuality.

Accounting Entries for Salaries

• Salary payments require double entry bookkeeping:
  • Debit Wages or Salaries account.
  • Credit Cash account (for cash payments) or Bank account (for cheque payments).
• For statutory deductions not immediately remitted:
  • Debit Wages or Salaries.
  • Credit any applicable cash or bank accounts and individual statutory payments due.

Statutory Payment Entries

• When making statutory payments:
  • Debit applicable accounts (e.g., national insurance, health insurance).
  • Credit Cash or Bank account.

Income Tax Calculation

• Total Tax Deducted: 93,618.16 comprises 90,000 (tax-free allowance) plus 3,618.16.
• Chargeable Income is calculated by subtracting Total Tax Deducted from Total Annual Income.
• Tax on Chargeable Income is assessed at 25%.

PAYE Deduction Calculation

• PAYE deduction is derived by dividing the Tax on Chargeable Income by 12 months.

Example: Janet James' PAYE Calculation

• Monthly gross salary: 9,500.00; Annual income: 114,000.00 (9,500.00 x 12).
• Total annual NIS payment: 5,168.80 (99.40 x 52 weeks).
• 70% of NIS payment: 3,618.16.
• Total tax deducted: 93,618.16.
• Chargeable income: 20,381.84.
• Tax on chargeable income: 5,095.46.
• Monthly PAYE deduction: 424.62.

Payroll Records

• Key payroll records include payroll lists, payslips, and individual record cards.
• Payroll summarizes employees' gross salaries, deductions, and net wages for designated pay periods.

Additional Information for Tax Deductions

• Employees seeking tax deductions for specific expenses must submit a TD1 form to the Inland Revenue Division.
• Supporting documents are necessary to validate legitimate tax-deductible expenses, including payslips and ownership evidence.

Example Calculation for PAYE

• Gross monthly salary example: 10,000.00; Total annual income calculated as 10,000.00 x 12 months, equaling 96000.00.
• Total annual NIS payment calculated based on weekly rates multiplied by weeks in the year.
• 70% of the annual NIS payment is calculated for relevant tax deductions.