How to apply different tax statuses and their definitions in Sage Payroll.
Description
Before you begin the first pay run of the tax year, update your employees’ tax status and allowances. This determines how much tax to deduct from their pay throughout the year.
Resolution
There are four different employee tax statuses:
Emergency tax is non-cumulative and calculated on a period-by-period basis. Calculations apply to the employee's taxable pay in the current pay run only. The calculation doesn't include payments from the beginning of the tax year.
You set an employee on emergency tax status if any of the following apply:
- The employee is new to your company
- The employee hasn’t provided you with their PPS number. If this scenario occurs, the employee pays tax at 40% on their total taxable earnings in the current pay run
- Revenue states on the employee’s RPN that their tax status is emergency
CAUTION:
Employees remain on emergency tax status until Revenue tells you otherwise. This will update when you retrieve the RPN.
TIP:
For more details, check Rules of emergency tax.
Week-1 tax is non-cumulative and calculated on a period-by-period basis. Calculations apply to the employee's taxable pay in the current pay run only. The calculation doesn't include payments from the beginning of the tax year.
You must put an employee on the Week-1 tax status if:
- Revenue states on the employee’s RPN that their tax status is Week-1
To verify the values on the RPN, you should check with Revenue.
CAUTION:
The employee remains on this tax status until Revenue tells you otherwise. This will update when you retrieve the RPN.
Normal tax will calculate on a cumulative basis. The calculation uses year to date values rather than pay run values. This includes all gross pay and tax-paid values to date within the current tax year. The values could relate to your employment or previous employment.
The tax allowances are also cumulative. If the employee has been on Emergency or Week-1 status, they may pay less tax. They might get a tax refund when you change their tax status to normal.
You put an employee on the normal tax status if Revenue tells you to. The Revenue's RPN certificate will inform you when the tax status is normal or cumulative.
When the status is tax exempt, employees don't pay any tax for the entire tax year. If they have paid tax in a previous pay run, the system refunds this back to them the next time you process their pay.
Only put an employee on the exempt tax status if the Revenue tells you to. Revenue's RPN certificate will inform you when the tax status is exempt.
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