The Economic Paradox of Taxation and Quantity of Collection Considered

There are many things in economics which can be proved mathematically, and at the same time – in practice which go against the basic assumptions one might have. Generally, most theories in economics are quite obvious, and easily explainable. However, at other times they often go against basic common sense, and this creates a paradox of sorts in the minds of decision makers, economists, business owners, investors, and consumers and citizens.

Indeed, I’d like to discuss an economic Paradox with you, one which has to do with taxation and the quantity of collection for the bureaucracy – government services. This paradox has been proven time and time again;

If you lower taxes, then the tax receipts go up, due to the increased economic activity and economies of scale.”

Unfortunately, I fear we may end up learning that lesson again the hard way. Speaking of economics another thing that disturbs me very much is one of “confidence, trust, fear, and uncertainty” with regards to regulation, congress, business, investors, and consumers. It seems there is so little trust that while everyone has their hair in a tizzy, the corporations are collecting all the money, without competition from the smaller businesses, meaning small businesses are not going to be hiring soon.

And really when we give money to the poor the rich have it in about 3-transactions anyway. If we give the money to the corporations through government spending they buy lobbyists and put up barriers to competition and find ways to suck more out of the government. However if we reduce regulations for small business, they hire more people, and buy more stuff, like vehicles, computers, etc.

Thus, corporations sell more stuff, the government has a bigger tax base, and the citizens all have jobs. It really gets back to that whole; “give a man (corporate legal entity – created person) a fish thing!” See that point? It’s too bad more Americans do not take economics classes, or understand a thing about economics before they go to the polls and vote for their favorite politician who sits behind a podium claiming they will solve all the problems, using what they call common sense, which is merely rhetoric, and the opposite of what really needs to be done.

For if a politician does not understand his economics, or the paradox of taxation and the quantity of collection, they are bound to make terrible decisions and put your city, county, state, province, or nation into a world of financial hurt. Indeed as the founder of a think tank, I hope you will please consider all this, and think on it.

MENS REA IN TAXATION OFFENCES

In Union of India v. Dharmendra Textile Processors, the question was raised about necessity to establish “mensrea” in taxation in offences. The matter was transferred to larger bench for judgment.

“Mens Rea” literally means a guilty mind. It is a cardinal principle of English Common Law is that a persons cannot be convicted and punished in a proceeding of a criminal nature unless it can shown that he had a guilty mind. The principle is self explanatory. A person should be punished for deliberate defiance of law, rather than something which didn’t do intentionally or something which happened accidently etc. Nevertheless, the principle is most misunderstood.

In certain offences, called statutory offences, it is argued that mens rea is not required. It is also argued that taxation offences are statutory offences, and hence mens rea is not required. Supreme Court, High Courts and Tribunals have consistently held that mens rea is not an essential ingredient for imposing a penalty unless statute specifically prescribes so. In economic crimes and departmental penalties, mens rea is not essential for imposing penalty.

The first problem we encounter is that what is meaning of mens rea. What is “mens rea”, which is required for the act to be punishable. What is a “guilty mind”. It is seen that deliberate defiance of law is punishable. Thus mens rea means a mental state, in which a person deliberately violates a law. Thus mens rea means intention to do the prohibited act. In Allrd v. Selfridge, it was held,

“The true translation of mens rea is an intention to do an act which is made penal by statute or by common law.”

Intention to do the penal act is sine qua non for punishment for any offence, an no law seeks to punish accidental or non intentional act of any person. Section 80 of the Indian Penal code says,

“Nothing is an offence which is done by accident or misfortune, and without any criminal intention or knowledge in doing of a lawful act in a lawful manner by lawful means and with proper care and caution.”

Section 52A & Section 167 of the erstwhile Sea Customs Act made bringing into Indian Custom Waters any ship with stealth holes/chambers. The offence is the act of bringing into Indian custom waters any vassel/ship with stealth holes/chambers. Thus requirement of the offence is “conscious act of bringing a vassel with stealth hole/chamber into India”. Nothing else, like intention to smuggle etc. is required, because the offence is bringing that type of vessel in India.

In fact no sweeping generalization can be made as to what is requirement of mens rea. The fact is to read into the offence itself.

Section 11AC reads as,

“Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined :”     

A plain reading of the Section suggests that various mental state is required- and that is fraud, collusion, willful misstatement, suppression, or contravention of Act or Rules and those acts must be there with “intention to evade payment of duty”. Mere non payment of duty, or mere contravention of any provision will not attract the Section.

Let us see Rule 25(1) of the Central Excise Rules, which makes following act punishable:

“removes any excisable goods in contravention of any of the provisions of these rules or the notifications issued under these rules”

Say a person removed any excisable goods without making an invoice. Can he claim that there is no intention to evade payment of duty, or it was bonafidely done. No. The offence is simple- removal of any excisable goods in violation of provisions of the law. Mere conscious act of such removal is punishable. No other mental state is required to be proved. However, such removal must be intentional- and not accidental- although the provision does not say so explicitly.

Say for example there is a fire in a factory. To save the finished product the manufacturer removes the goods outside factory, without making invoice. Whether the act is punishable- No. Why? Because the act of such removal is not deliberate, it is done to avoid a greater harm. That is what mens rea is. We have look at the definition of the offence and see whether the act which has been made punishable has been done deliberately or not. No other requirement can be added in the section in the name of mens rea.

When we will see the offence under Clause (d) of Rule 25, the provision says- contravention of any provision with intention to evade payment of duty”. Thus a mental state of intention to evade payment of duty is required to be established before any person can be penalized under this sub clause.

Thus mens rea refers to mental state of doing the prohibited act deliberately. In the name of mens rea additional ingredient cannot be added in the definition of an offence. At the same time in the name of “statutory offences”, no ingredient of the offence can be deleted from the definition of the offence.

In India all offences are statutory, and the genral law as to crimes are codified in the Indian Penal Code. Definitions of crimes in various sections of the code contains specification of the mental state which is required to established as a necessary constituent of crime. The genral view having regard to the scheme of the code is that the maxim “actus non facit reum nisi mens sit rea” has no application to offences under the code. When the principle of mens rea is not applicable to criminal offences, it cannot be imported into taxation offences. The only thing which is required to established is “deliberate act or omission prohibited by law”. Mens rea is nothing but intention to commit the prohibited act.

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On Dog Taxation

Imposing dog tax has been popular on the Internet recently. From hitting dogs several years ago to currently imposing dog tax, it seems that raising dogs is not as easy as one thinks. Although some related measures have been taken to take charge of dogs, managing dogs is as the same with managing people because they can not understand what they are told to do and what is forbidden. They bark at night and foul everywhere they want. However lots of people are fond of raising dogs, especially for old aged people and the singles. They treat dogs as their friends. This makes the management of dogs even harder. But is it workable to adopt dog taxation?
I do not expect that over seven out of ten netizens agree with imposing dog tax. If it is adopted, raising dogs virtually becomes a fashion of the rich. If this rule is implemented, this problem seems to be solved. But according to the journalist who has interviewed the director of Pet Department, it is unlikely to impose dog taxation. Raising pet is not in the range of imposing tax. Taxation is economic leverage, which can be imposed only through trade. Raising dogs is obviously not a way of trade and it won’t be taxed accordingly. However, the trouble caused by dogs is in fact serious. It is expected that related departments should enhance their practice on dogs. It is recommended by expertise that dog owners should promote their sense of how to raise a dog instead of influencing other people’s life as well as public security and sanity.
In our country, rules of raising dogs are to be improved. We can adopt other countries’ experience and learn their successful one. In this way, this problem may be settled down eventually.
For more, please visit http://hotefashion.com

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Don’t Let Your Entire Profits Drain into Corporate Taxation

The complete process of earning money and saving it is complex and gruel some, especially if it is complimented with taxation policies. Corporate Taxation is the income tax that is to be paid on the profits of the company. Taxable profits are calculated by subtracting total expense from the gross income. The amount levied from it is subjected to it. In the UK it is as high as 28%. For other countries it is different on individual basis. Corporate taxation counts all businessmen- small, medium and big. With 16 pages Standard Tax Calculation Guide and 34 pages comprehensive Tax Calculation Manual, the HMRC’s mantra “Tax doesn’t have to be taxing” doesn’t ring a soothing bell to the ears.

Process Involved

The amount decided to be paid as tax is not assessed beforehand by Inland Revenue. Any failure to make the payment in time will attract additional penalties and fines. Before the introduction of the tax enactment on April 1st 1965 the individuals and companies shared the same tax bracket with nominal additional profit taxes to be paid by the companies. But, with this enactment on 1st April 1965 there were changes introduced in to the corporate tax structure. As a result the business class had to suffer double taxation policies. This latest system was called the Classical System and was a follow up of the United States.

Online professional help

To add to the injury, this policy applies to all residential and non residential companies of the UK. Those companies that have international presence have to cope up with individual policy of respective countries. So, the net profit at times becomes virtually zero! To take you out of the dreadful situation many online financial advisories are working on board. They have qualified professionals as accountants, auditors, chartered tax advisors. You can trust them with your accounts and rely on their experience and qualification levels. They have updated information regarding the several tax policies of all countries and work accordingly. Take their expert advice to save maximum from the hands of corporate taxation worldwide.

IR35 – The Rules and Regulations Explained

If you work as a freelance contractor, particularly within the IT industry, then you will probably already be familiar with the IR35 rules and regulations. The IR35 affects all contractors who don’t come under the Inland Revenue’s classification of ‘self employment’.

IR35 became law through Schedule 12 of the Finance Act 2000, and was put into place to prevent freelance contractors from taking their income by way of a small salary and large dividends from their limited companies. This way, the Inland Revenue could be sure that contractors had the same taxation laws applied to them as those carrying out the same job under regular PAYE conditions.

The main reasons behind putting the IR35 rules into place as there were many in the IT industry who leaving their permanent job and then returning soon after to do the same job, but as a contractor working via a limited company. This enabled them to get paid a lot more for the same job as they were doing previously, but as a freelancer they would be paying less tax and national insurance as a proportion of their income.

The Inland Revenue makes the decision whether employment is considered to be subject to the IR35 rules or not, by calculating if that person is ‘employed’ or ‘self employed’.

For those working in an office or at a location on a typical 9-5 basis, as an employee with no direct responsibility and using the equipment supplied at the business premises, then the Inland Revenue would consider you to be employed, thus you would be subject to the IR35 rules.

On the other hand, if you are based from home, have a number of different clients and use your own equipment for work, then you are said to be self employed under the rules. The Inland Revenue looks at all the circumstances regarding your working situation and determines your employment status from their findings. The more indicators there are to legitimate self employment the better for you as it means you avoid IR35.

A regular limited company contractor who the IR35 rules don’t apply to, would normally take out a reticent salary (net of employers and employees’ national insurance contributions, and income tax), with the main part of income being in dividends. If you come under the umbrella of IR35 regulations, then your income from that contract will be significantly reduced in comparison to being termed as ‘self-employed’.

Before accepting a new IT contract, as a contractor you should make certain that the conditions of the contract demonstrate that they are agreeable with the IR35 rules, meaning you are not seen to be an employee of your client. This also applies to the way you actually carry out your duties, such as the location and equipment used for the task.

The IR35 rules are not applied to the person; they are applied to each individual contract. This means that you may well have 3 or 4 different contracts a year, but it doesn’t necessarily follow that each one will fall within the IR35 rules, they are all viewed separately.

There are still plenty of contractors working who have done nothing about the IR35 issue, expecting the legislation to be withdrawn, or assuming it doesn’t apply to them. However, IR35 is the law and your responsibility as a contractor is to check if you fall within their rules and, if so, make arrangements to pay the correct taxes.

To avoid the IR35 regulations, your contract and a working practices have to plainly demonstrate that you are ‘self employed’ according to the HMRC’s employment status rules. If you are unsure if the rules apply to you, then check online for specialist contractor accountants with expertise in IR35 and IR35 Rules. Online IR35 accountants can offer clear and straight forward advice and provide a free tax calculator to help you calculate your take home pay.

Look online for specialist contractor accountants offering accountancy for contractors and accountancy for freelancers in the UK and see how they can ensure you follow all areas of IR35 compliance as well as maximize your take home pay.

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Guide to IR35 – The Rules and Regulations

Working as a freelance contractor, predominantly those in IT, you should already know about the IR35 rules and regulations. The IR35 concerns any contractor who isn’t seen as self employed according to the Inland Revenue’s classification.

Becoming law through Schedule 12 of the Finance Act 2000, the IR35 rules were prompted to stop freelance contractors from claiming they were self-employed and setting up a limited company. This way they could pay themselves a minimum amount for their salary and get the rest in large dividends. The rules ensure that contractors now come under the same taxation laws as anyone doing similar work under a standard PAYE situation.

The primary motives behind the IR35 rules were to thwart those working in the IT industry, it was common practice for them to resign from their permanent job and, after a few weeks, go back to the same job but this time working as a contractor with their own limited company. They did this because the money was a great deal higher due to a lower tax band and less national insurance as a proportion of their income to pay.

Finding out if you are classed as employed or self-employed is dependant on the Inland Revenue; the IR35 rules apply to those who are not termed as self-employed.

If your job entails you working in a particular location, such as an office, on a regular weekly routine and you are using all your employees tools at the site, then the Inland Revenue would regard you as being employed by that company, this means you come under the IR35 rules.

Alternatively, if you work on a daily basis at home, have a quantity of singular customers and utilize your personal equipment for work, then you come into the self employed category. The Inland Revenue looks at each individual case and the surrounding conditions concerning your working situation and concludes your employment class from their results. The more pointers there are to genuine self employment the better for you as this way you evade IR35.

A standard limited company contractor who doesn’t come under the IR35 rules, would generally pay himself a salary (net of employers and employees’ national insurance contributions, and income tax), with the lion’s share of income paid in dividends. Those who do have the IR35 rules applied to them for a particular contract will find their earnings are notably lower than if they were classed as self-employed.

Every time you consider accepting a new IT contract as a contractor, ensure that the conditions of the contract openly show that they follow the IR35 rules, this would mean that they clearly state you are not an employee of the company you will be undertaking the work for. These conditions also apply to the way you do your job, such as where you work and whose tools of the trade you are using.

The IR35 rules apply to each individual contract that you accept, the Inland Revenue does not look at you as a contractor. This could mean you have 4 to 5 separate contracts over the course of a year, but each one will be viewed individually, so some may be classed under the rules, whereas others may not.

Talk to any number of contractors and it becomes obvious that not everyone is familiar with the IR35 rules and regulations. Or have just done nothing about the change in law as they feel the rule will be changed again soon or believe it doesn’t affect them. Nevertheless, the IR35 is now the law and it is your duty as a contractor to confirm if you fall within their rules or not, if you do you need to adjust your tax payments accordingly.

To steer clear of the IR35 rules, your contract and working situation has to clearly show you are ‘self employed’ as the HMRC’s employment status rules state. For those of you who are confused by this issue, then go online and look for contractor accountants who are experts in IR35 and IR35 rules. Online IR35 accountants will be able to offer you understandable and simple advice and you can use their free tax calculator to assist you in calculating your take home pay.

Check out a few websites for high-quality contractor accountants offering accountancy for contractors and accountancy for freelancers in the UK and find out how they can make certain you comply with IR35 regulations.

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Benefits of Hiring a Tax Professional to Help With Your Tax Debt

It can be very easy for some people to find themselves in need of tax debt help. When the IRS audits a business or individual, it can be a very long and difficult process to go through. For those that are not familiar with tax laws and the nature of how they can implicate a business, it can become very confusing to understand what an IRS agent is doing. There are some benefits to hiring a professional to help protect you from being taken advantage of, but there are some instances where it may not be of benefit to do so.

Benefits of Hiring a Tax Professional

In most cases it’s going to be a huge help to hire a tax professional to provide you with guidance. This tax debt help can make a huge difference in any tax liability that you may be facing. The professional understands the tax code and is able to argue your case with a revenue agent and can help to reduce the amount of money that you may have to pay. This is probably the number one reason why it is helpful to hire a tax professional to help you.

Pros and Cons of Handling It Yourself

If you were to choose to handle your tax case by yourself, you may find it difficult to make any headway towards reducing any liability you may have. It can take years to fully understand how the tax code works and trying to do it in a few short months on your own can be very complicated. In addition some tax laws are very complex and they involve many different aspects of a business. This can be hard to tackle and fully comprehend without receiving proper education and training. In some instances where the issue at hand is simple and the tax law is not complicated to understand, it may be beneficial to not hire a professional. In most cases this does not happen and you would receive much better tax debt help by hiring a tax professional to assist you.

It should be fairly clear now that taking on tax debt by yourself is not always the best thing for you or your business. A professional understands how the Internal Revenue Service works and is going to work in your benefit to help reduce the amount of money you owe or eliminate it altogether. Make sure that you choose your tax representative carefully; a good representative can mean the difference between owing thousands of dollars and not a owing anything at all.

Tax Attorney VS CPA

Tax Attorney VS CPA

Like it or not, each of us really have to pay our taxes. But there is so much trouble understanding taxation even to a genius mind. Albert Einstein admitted, “The hardest thing in the world to understand is the income tax.” On the other hand, you can hire an IRS Enrolled Agent, to represent in behalf of the taxpayer, before the Internal Revenue Service. Enrolled agents are like tax attorneys or certified public accountants (CPA). These agents are unrestricted as to which taxpayers they could represent, as to what type of tax matter they could handle and which IRS office they could put into practice.

But, which is which? Who is to be chosen? Tax Attorneys vs. CPA. Before choosing, you should yet consider the roles of each Tax professional.

Tax attorneys. An attorney observes the legal principle that protects the confidentiality of the information of their clients. The legal principle practiced is the so-called “Attorney Client Privilege”. This privilege highlights that the information between the personas involved cannot be given to third parties, even to the Internal Revenue Service (IRS). The line of information is exclusively between the tax attorney and the taxpayer only. Thus, only attorneys are exempted to be forced to provide essential information to other people or even to testify against their clients.

Certified Public Accountants. The role of an accountant differs from that of the tax attorney. They can provide essential advice concerning financial planning, and they help clients file or correct tax returns. Which helps avoid particular tax problems. However, they are not well versed with the law. In some case, like tax bankruptcy, they cannot provide legal advice or even help their clients have for themselves of any available options. During court proceedings only the attorney can handle the case in your behalf since he/she is qualified to properly analyze legal issues and advice clients of their rights.

But either way, CPA’s and Tax Attorney’s undergo two tracks of becoming an IRS Enrolled agent. According to regulations contained in the pamphlet of Treasury Department Circular 230 states: Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents, Enrolled Actuaries, and Appraisers Before the Internal Revenue Service. The two tracks are as follows:

Written examination- Demonstrating special competence in tax matters by taking a written examination.
IRS Experience- virtue of past service and technical experience with the IRS that qualifies you for enrollment

Paying our taxes doesn’t make us happy. But not paying our taxes would even make us miserable. The choice is up to you!

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IRS Tax Levy- Resolve Bank Levy with Instant Tax Solutions

A bank levy is when your bank account is frozen and all or part of the profits in your bank account is confiscated. Bank levies can befall for numerous causes, all the same the two most common are due to unpaid taxes and unpaid debt.

A bank levy by the IRS is brought down on folks to reclaim the absolute sum of money owed, while adjusting the sum of money to the tax due. When you neglect to pay your taxes even after you’ve been dished out a lawful notification, your bank will recuperate the amount from your current account and return it to the IRS. In case your account has depleted monetary fund to address your debt to the IRS, your bank holds the right to freeze out your account and regain the full sum. This procedure is known as a bank levy. Put differently, a bank levy is enforced on you coming after your unfitness to answer to the notice and pay off the undischarged taxes to the IRS within twenty-one days.

The bank account can be about whatever type of account (e.g. savings, current, etc) and while most levies happen in the United States, the IRS or a different creditor can occasionally go after off shore accounts. Once a bank levy is brought in on your account, whatever money that is in the account will be confiscated. If there is not adequate profit in the account, the whole amount will be abstracted and your account will generally stay frozen till the debt is compensated.

Just in case you are incapable to make up your debts promptly, the tax section bears the right to pioneer lawful action against you by enforcing a bank levy on your current account. A bank levy can be crushing, causing average daily living inconceivable. If you incur a notice of a bank levy from the IRS, you are required to act promptly. Once you obtain the “intent to levy” letter, you must act promptly if you mean to block off the procedure.

It ought to be remarked that a bank levy can come about quite often and it’s not a one time case. A creditor can petition a bank levy as numerous times as he prefers to until the debt is compensated. A lot of banks penalize their customers if their bank account obtains a levy. It had better be noted that any checks that have been published before the event that have not been cashed in will bounce, since your account is frozen. It should also be noted that withdrawals can’t come about, but in most situations, deposits can happen. So if you’ve obtained a bank levy and have your employer situate income into your account, this income will be seized also.

Undertaking to talk terms with the IRS on your own can head to magnified penalizations and fines, added financial strain, and lost chances. You need the help that Instant Tax Solutions can provide. Let Instant Tax Solutions alleviate your tension and assist you recover financial freedom!

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Pay As You Earn Wages And Salaries Tax Scheme Explained

PAYE is the common abbreviation for the Pay As You Earn scheme that was first introduced by the UK in 1944 as a tax system by the inland revenue which employers administer to deduct from employees wages and salaries income tax and national insurance contributions and account for the employers national insurance contributions. Although strictly speaking not part of the PAYE scheme employers also use the pay as you earn framework and documents to administer other deductions.

Every employer in the UK must register as an employer with the tax authority. Register to administer a PAYE scheme is obligatory if the employee has other paid employment or has earnings at or above the PAYE threshold and liable for deductions of income tax, or has earnings at or above the national insurance lower earnings level. Registration can take place up to four weeks before the first qualifying employee is engaged.

The paye system is a scheme whereby employees are deducted income tax and national insurance on a weekly or monthly basis according to the frequency of wage and salary payments by the employer who then pays the income tax and national insurance contributions over to the inland revenue in the UK each month.

The employer is also responsible for keeping a record of the employers national insurance contributions which together with the employee deductions are paid over to the tax authority on or before the 19th of the month following the pay period. Small business that has a quarterly liability to income tax and national insurance less than 1,500 pounds per quarter can arrange to pay the PAYE every three months rather than every month.

PAYE administration involves the calculation of income tax using a tax code system. Each employee is allocated a tax code which consists of a number equal to approximately one tenth of the personal tax allowance as adjusted by the employee personal tax adjustments. Special conditions and circumstances for each employee is usually representing in the tax code with a letter known as a suffix to the prefix tax code number.

The financial tax year in the UK is from 6 April one year to 5 April the following year with each tax year divided into 53 specific week numbers that accounts for days over at the end of the year and also into 12 monthly periods. Income tax deducted is calculated by the employer operating the PAYE scheme on a cumulative basis during the tax year by using either manual tax tables or a payroll software package. The tax table is arranged to determine the tax free allowance each pay week or month during the year according to the employee tax code.

To calculate the income tax the employer determines the cumulative tax free allowance in a specific week or month and deducts this allowance from the cumulative gross pay that employee is due at that tax week including current wages or salary and all previous income earned during the current tax year including any earnings from other employers. Having established the taxable pay that amount is then applied to the percentage of income tax to be paid under the current tax rules for that financial year.

The employer is responsible for deducting the correct amount of income tax, issuing the employee a payslip to advise the income tax deducted and also for paying the income tax deducted to the tax authority. The PAYE calculations and production of payslips is an essential function of payroll software that many employers adopt to ensure accuracy and compliance with the regulatory bodies tax rules.

The second major area of PAYE administration is for employees to deduct national insurance contributions from employees. National insurance contributions are calculated not on a cumulative basis as income tax but are calculated according to the gross income earned in a specific pay period based upon the gross pay during that weekly or monthly pay period.

The amount of national insurance deducted is determined by looking up the employee gross pay on a national insurance deductions table. A different national insurance table is applied according to the personal circumstances of the employee. In addition to the employee national insurance contribution each employer also has to pay an employer national insurance contribution.

PAYE administration is a series of payroll and deductions documentation related to the payment of wages and salaries to employees. The majority of businesses use payroll software to automate the calculations and produce the information required for the PAYE returns.

The starting point of the PAYE system is the P45 which all employees receive when they leave an employment and is a certificate of the cumulative gross pay and income tax deducted up to the date of the P45. Details from the P45 also include the employee tax code that must be entered into the employee PAYE records to enable the new employer to calculate the income tax due to date.

If an employee does not hand the new employer a P45 then they are taxed on a week to week basis until the tax code and cumulative income tax position are known. Confirmation of an employee tax position is obtained by the new employer by submitting a P46 form to the Inland Revenue when an employee does not have a P45.

Having engaged an employee and deducted income tax and national insurance contributions the employee must receive a payslip from the employer showing the gross pay, deductions and net pay. In additional the employer also needs to maintain records of payments to the employee and deductions made. Payroll software can produce these records and the Inland Revenue also provide small employers with a P11 deductions working paper for this purpose.

At the end of the financial tax year for payroll three main PAYE documents are required to be completed by each employer. Each employee has to be given a P60 certificate of earnings and deductions during the financial year. The P60 is an important document and often required for many diverse purposes unconnected with the PAYE system such as future mortgage applications and other purposes as proof of income.

The employer also has to complete a P14 for each employee which is the form on which the employee deductions and statutory payments are recorded. The P14 is sent to the Inland Revenue.

In addition every employer also has to complete a P35 which is the Annual Employers Return which lists the name of every employee, the income tax deducted and national insurance liability including employee and employer contributions. The P35 also includes statutory payments made to employees and the amount of the employer has already paid to the Inland Revenue. In the UK employers can receive a tax free bonus for filing the P35 details online.

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