Any employed person in the public or private sector must pay taxes to the government. This is a compulsory contribution by a working individual to the federal or state government to enable them to meet their obligations – to help the authorities fund their social projects. The tax paid by an employed individual is known as pay as you earn (PAYE). And in most nations, PAYE Tax is calculated on a progressive model. In other words, taxes are expected to increase with an increase in the level of income.
That said, here’s how you can work on properly meeting your PAYE tax obligations. Continue reading to learn more.
1. Find The Right Tools
One of the best ways to ensure you work out on PAYE tax is by finding the right tools. One of them is the PAYE calculator. This is a tool that can help streamline the whole process.
Anyone, including individual employees, can purchase PAYE calculators. Yet human resource managers in every organization need to have them. This is important, especially when dealing with many workers.
Working out PAYE manually can make much of your time. As a result, you may not find time to concentrate on other essential tasks. But with a PAYE calculator, you can complete the task within no time. For that reason, you’ll likely save time.
Besides, a PAYE calculator can help minimize clerical errors. It ensures the right amount of taxes is paid to the government. For that reason, an employee won’t underpay or overpay taxes to the state.
There are several PAYE calculators in the market. Nonetheless, not all of them are good. While some are of poor quality, others are very complex to operate. Make sure you choose the right tool for you to use.
2. Determine Monthly Or Annual Taxable Income
After finding the PAYE calculator, you need to determine the total taxable amount. This can be either monthly or annual income. But in most cases, PAYE taxes are computed monthly.
Various components will form your taxable income. These include the basic salary, allowances, bonuses, commissions, sick pay, leave pay, and any other income.
Apart from the cash rewards listed above, you may consider adding non-cash benefits. These are rewards or gifts you receive from customers or your employer. Nevertheless, not all gifts are taxed. They’re taxable only if they’re provided for recognition of a service rendered, they’re frequently paid, contracted for, and paid in a specific line of duty.
After getting your gross income, you need to deduct allowable tax deductions like contributions to a retirement scheme, mortgage interest paid, contributions toward the national social security fund, contributions towards a professional body, and others. Doing so gives you the total taxable income.
3. Calculate The Gross PAYE
After determining the total taxable income, it’s time to compute gross PAYE. This is the amount of tax you’re supposed to pay to the government before being awarded personal relief.
As noted earlier, in most cases, PAYE is computed on a progressive model. Therefore, the more income, the more the amount of tax.
Calculating gross PAYE is simple as you may think. The revenue collection authority has provided the various brackets against which PAYE should be computed. You should exhaust all the lower tax brackets before proceeding to the higher ones. Always make sure you compute tax using the percentages given in each bracket.
4. Find Net PAYE
You shouldn’t submit the gross PAYE to the government. You need to go the extra mile and determine the net PAYE under the guidance of your employer. You can achieve that by subtracting personal relief.
A personal relief is an amount of money that the government allows you to deduct from the total PAYE. Every employee is required to deduct the personal relief from their gross PAYE.
The government provides personal relief as an appreciation to employees for paying taxes. Deducting personal relief from the gross PAYE allows you to arrive at net APAYE. Only the net PAYE tax should be submitted to the government.
5. Work With Professionals
You can compute PAYE tax by yourself. Yet sometimes you may need the assistance of experts. This is especially true if you don’t have time to complete the task on time. And even if you’ve time, you may lack the right skills. This causes delays. For that reason, you may consider computing and filing your tax obligations or PAYE tax by hiring a service provider.
There are several PAYE calculation service providers and not all of them can efficiently meet your needs. Research to find a reliable and reputable service provider.
Computing PAYE tax can be a complex process considering the various elements you’ve to put together. But with the strategies explained in this post, hopefully, you can be guided and simplify the whole process.