Does Payroll Software Help You Calculate Taxes?

By Mark Spencer | Small Business

In the UK, there are two major types of tax applied to income. Pay As You Earn (PAYE) income tax is applicable to employees that earn above the National Insurance lower income level, with PAYE and National Insurance Contributions (NICs) being the main examples of the first kind of payroll tax.

For any business, it is extremely important that tax and tax applicability are accurately determined and calculated. This is something that can be handled by many commercial payroll software solutions, and indeed this is one of the biggest benefits to having such software. Payroll management software helps a business keep on top of its tax obligations with surprising levels of ease and efficiency.

The ability of UK payroll software to calculate taxes, additions and subtractions makes it a vital tool

With a number of different income tax bands, many other payroll additions and subtractions, as well as the added complication of different payment types and pay frequencies, the ability of payroll software to make accurate calculations makes such software extremely useful and worthwhile. Furthermore, with HMRC recognised UK payroll software from one of the best providers, all of this is surprisingly simple to manage.

With HMRC recognition and the additional ‘Basic payroll values checked’, you can be sure that the software can correctly calculate NICs and statutory payments.

Payroll applications are able to handle both major kinds of payroll tax, and make automatic changes for each employee as circumstances change

UK payroll software makes calculations for many of the normal payroll requirements, including taxes. In terms of taxes, software will calculate NICs (and determine whether an employee needs to pay them based on their earnings) and PAYE income tax, as well as calculate company NICs.

Any good software solution can adapt and apply the necessary PAYE changes in the event that an employee’s income increases during the tax year and takes them into a new tax band. All you have to do is add the new salary information and the software does the rest.

As the software operator you are still required to input certain data for your employees, such as their hourly rate and their working schedule. You are also required to update pay when an employee’s pay increased or decreases.

In addition to taxes, RTI payroll software also supports a range of other deductions, including deductions for pension schemes and saving schemes, and attachment orders. Once you enter the parameters for any of these types of deduction, and specific that you want the deductions to repeat throughout every pay period, the deductions will then be made automatically for each employee in each pay period.

Other important calculations include Statutory Sick Pay and Parenting Pay, and just like taxation, a good software solution makes it easy to calculate the necessary amount of statutory pay to give to an employee, and to determine how much they are entitled to, based on how much they work – calculations here are particularly useful for irregular working patterns.

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