Manual Payroll - Understand Your Software Calculations (UK)

Hello and welcome to the course.

Let's get started with an introduction from myself, and also a quick online quiz to see what you may know already about Payroll. Enjoy!!!

As you go through the lessons, don't forget to checkout the RESOURCES folder. PDF versions of Online resources will be provided where ever possible, so that you don't miss out if there are internet or software issues.

What is a Payslip for?

What are the Legal Requirements?

What does it mean?

This lesson will break down the payslip into 3 key areas and introduce some of the key terminology and formats that a payslip can be presented in. It will also give you an example with some extracts, and give you the opportunity to look at some of your own payslips from varying past and present employers.

What is a Manual System and a Computerised System, and what benefits (and disadvantages) do they bring?

This lesson will introduce you to the main features of both, whilst showing you where to access HMRC's Tax Tables and recommended payroll software. This lesson uses an example of the 2022/23 data, whereas later lessons will concentrate on the 2023/24 datasets.

Records are an integral part of any business, and it is especially so for an Employer. Lets take a look at the types  of records you should be keeping, both operationally and legally, how long you should be keeping them for, and how you should be storing, securing and sharing information in line with Data Protection and GDPR.

Pay can include a few Pay Elements (Factors) such as Time Rate (Basic Pay), Overtime, Bonus' and Piecework. Find out what each of these are, and how the information can be captured so that a Gross Pay can be calculated

Tax Codes What are they and what do they mean?

Individuals may now and again get tax code updates via the HMRC P6 and P9 notices, but often don't give them a second thought, tending to concentrate on their tax deductions.

The tax code represents the individuals Personal (Tax Free) Allowance and is an important starting point. This lesson will help you understand the different tax codes so that we can determine the Tax (Free Personal) Allowance to apply.

Having looked at the construction of Tax Codes and how they are issued, we will break it down further to garner a look at the Tax Free (Personal Allowance) that they produce, with a look at the minus allowance produced by a K Code.

An overview of the UK's HMRC PAYE (Pay As You Earn) system, looking at what it involves, payment dates, reporting (Real Time Information) and deadlines.

Before we start using the Tax Tables provided by HMRC, lets take a look at their structure, how they work and the information they are providing us with for both Monthly and Weekly payroll frequencies.

In the next few lessons, we will be taking a look and breaking down a Monthly and Weekly payslip with the help of calculators, spreadsheets and HMRC literature. This lesson sets out the scenario before we delve into the calculations.

We will calculate a monthly salary at the Basic Rate of 20% using onscreen spreadsheets and calculators, prior to determining the same answer using HMRC's Tax Table Method.

Tables A is the starting point, as we need to determine what the Personal Free allowance will be, based upon the Tax Code. This lesson provide you with a visual rundown of Table A, so that you are not overawed by the data, and know how to pinpoint the location within the document that you require.

Going back to our Monthly example, lets use Table A to determine the Personal Tax Free Allowance that we have already manually calculated.

Now that we have determined the Personal Tax Allowance, we are going to use a similar process, this time with Table B, to calculate the Basic Rate Tax due at the rate of 20%, from our onscreen example for a Monthly Payslip.

We've just taken a look at calculating a Month 1 Personal Allowance (Tax Free Allowance) with the use of Tables A, determining the Taxable Gross Pay, and calculating the Basic Rate Tax at 20% using Table B.

Now lets take a look at a Week 1 payrun for a weekly pay frequency.

Using a real-life M01 payslip, I would like you to calculate to PAYE Tax using Tables A and Table B. I will then demonstrate the answer on screen. Use the attached resources or the on-screen exercise to help you complete this task.

Using a real-life M01 payslip, I would like you to calculate to PAYE Tax using Tables A and Table B. I will then demonstrate the answer on screen. Use the attached resources or the on-screen exercise to help you complete this task.

Using a real-life W01 payslip, I would like you to calculate to PAYE Tax using Tables A and Table B. I will then demonstrate the answer on screen. Use the attached resources or the on-screen exercise to help you complete this task.

Using a real-life W01 payslip, I would like you to calculate to PAYE Tax using Tables A and Table B. I will then demonstrate the answer on screen. Use the attached resources or the on-screen exercise to help you complete this task.

What happens when an individual is paid at a rate that exceeds the Basic Rate Tax threshold? Well, using a spreadsheet and calculator, we will work through an example of the the process of calculating this, prior to moving onto using HMRC's Taxable Pay Tables to calculate a precise Income Tax computation.

We've just taken a look at calculating a Month 1 tax using a spreadsheet example, now lets determine the PAYE Income Tax using HMRC's documentation.

Using a spreadsheet and calculator, we will work through an example of the W01 process of calculating the PAYE Income Tax, prior to moving onto using HMRC's Taxable Pay Tables to calculate a precise Income Tax computation.

We've just taken a look at calculating a Week 1 tax using a spreadsheet example, now lets determine the PAYE Income Tax using HMRC's documentation.

We've just taken a look at calculating a Week 1 tax using a spreadsheet example, now lets determine the PAYE Income Tax using HMRC's documentation and a Payslip, along with some extra Pay elements and a Tax Code that could through you off course.

A slightly different exercise for you to test your knowledge. This time, you are provided with three scenarios and partial information. Using the skills you have learnt, and the information available, I would like you to complete the missing areas presented in the grey shaded cells. We will then return in the next lesson to look at how the outcomes have been achieved.

Manual Calculations - Exercise 2 Scenario 1 onscreen answer for your review.

Manual Calculations - Exercise 2 Scenario 2 onscreen answer for your review.

Manual Calculations - Exercise 2 Scenario 3 onscreen answer for your review.

What happens when an individual is paid at a rate that exceeds the Higher Rate Tax threshold? Well, using a spreadsheet and calculator, we will work through an example of the the process of calculating this, prior to moving onto using HMRC's Taxable Pay Tables to calculate a precise Income Tax computation.

We've just taken a look at calculating a Month 1 tax using a spreadsheet example, now lets determine the PAYE Income Tax using HMRC's documentation.

We have focused so far on Week 1 (WK1) payroll periods, but PAYE is a cumulative system, and it always looks at the earnings and tax on a Year to Date (YTD) basis. This lesson makes an introduction to this process with the use of a manual P11 form from 2013-14, which will provide the basis for us continuing onto WK2-WK4 in the next lesson.

This lesson will look at a P11 produced from Payroll Software which follows the same format as the manual P11 from the previous lesson. We will prove the values for WK1 using HMRC's documentation, then we will look at how we would calculate WK2 for the same scenario, demonstrating the cumulative effect of Income Tax within the PAYE system.

Now its your turn. Having looked at a WK1 payroll progressing into the cumulative WK2, I would like you to determine the missing values for WK3, prior to being shown an on-screen examples.

Are you able to manually calculate the answers that the Payroll Software has produced?

What happens when an employee has paid too much Income Tax in the current financial year? This lessons looks at this, and shows you how to calculate the Tax Refund within the PAYE system.

Finishing off our weekly cumulative task, we will see what happens if an employees pay drops to the extent that they've overpaid tax in the Year-to-Date, and are therefore due a refund.

Having previously looked at M01 payroll's so far in the course, I would like you to start this lesson by extracting the computerised Payroll P11 report calculations using your knowledge, and HMRC's Tables A and Taxable Pay Tables prior to seeing the onscreen example. This will be our basis for moving onto M02 and the accumulation in the next lesson.

This is our first step in demonstrating the cumulative effect of a Monthly payroll, as we advance on from the prior lesson, using our Year To Date figures to calculate the Income Tax due.

Looking at the M03 period, the Gross Pay has reduced, and this has impacted the Tax Due To Date, and also the Income Tax already paid by this individual. Therefore we must calculate the Refund due to the employee through the PAYE system.

It's time to test yourself again, following the previous lessons tax refund. Work through the activity for M04 at your own pace, and resume the lesson to see an onscreen worked example. This will set us up nicely for the next lesson where there will be a new change awaiting us.

What happens if an employee changes their tax code part way through the year? How is this applied? How does this effect their Income Tax?

This lesson deals with this exact scenario, and it also provides a good working example of how the PAYE system is quite good at dealing with changes to make sure that the correct tax is paid as soon as is reasonably possible.

National Insurance is another deduction made through the PAYE System, but unlike Income Tax, there is also an Employer Contribution which acts as a business expense (overhead). Take a look at the different Classes and Rates along with what National Insurance contributes towards.

Now its time to look at the figures, both in terms of thresholds, rates and values. Also, we will take a look at the many changes that National Insurance has incurred over the past few years, and the effect this has had on contributions for both the employEE and employER.

Before we begin looking at our Weekly and Monthly National Insurance Scenario, its good to take a look at what thresholds are, their names and what they mean from an employee deduction and employer cost point of view.

Using onscreen calculators and spreadsheets, we will first of all concentrate on the Weekly EmployEE National Insurance Contributions, looking at the thresholds that have to be passed through (Upper Earnings Limit and the Primary Threshold), in order to apply the correct contribution percentage. We can then do the same in the next lesson with the EmployER contributions.

Using onscreen calculators and spreadsheets, we will first of all concentrate on the Weekly EmployER National Insurance Contributions, looking at the thresholds that have to be passed through (Secondary Threshold), in order to apply the correct contribution percentage. We will then move on in the next lesson and do the same again, but using a MONTHLY employee scenario.

The 2024 Winter Budget unveiled by Labour threw up a surprise tax increase for employers in the form of an increase National Insurance rate, and a lowering of the Secondary Threshold. This video looks at how this can have an increased cost on employers labour costs, using an onscreen example of a Weekly and Monthly employee, comparing before and after costs.

We've already looked at Tables A and B for PAYE Income Tax, but there are also tables for National Insurance. This lesson aims to introduce you to the format, structure and purpose of HMRC's National Insurance contributions tables before calculating our example computations with the use of them.

Now that we know how the tables operate, its time to use them to see if our manual calculations for EmployEE and EmployER National Insurance contributions were correct.

There are only 52 weeks in a year, so a weekly paid employee should get 52 payments in a year, a 2-weekly employee would get 26 payments, and a 4-weekly would get 13 payments.

Well the above is not true in PAYE terms, as we can sometimes be made to create and extra payment, known as a Week 53 additional payment. This lesson explains the reason this occurs, if it applies to you, and what you need to do to implement it, and prepare your workforce.

I hope you have enjoyed the course that you have enrolled onto. Please see below some other courses I have created to help you learn and advance in the areas of Bookkeeping, Payroll and Finance & Accounting:

Payroll Management - The UK Payroll System

Debits and Credits (The Bookkeeping Dual Effect)

Manual Payroll - Understand Your Software Calculations (UK)

Bookkeeping and Accounting - The Ultimate Finance Course