What different types of payroll taxes exist?

31/01/2023

As a business owner, meeting your tax obligations is fundamental. But if you are taking on your first employee, you might not know how your tax obligations will be impacted…

If this is the case, you need to find out.

To get off on the right foot, we have outlined which payroll taxes exist so you can ensure you meet your PAYE requirements.

Income Tax

Your employee will be required to pay Income Tax on any income that surpasses the Personal Allowance, which stands at £12,570 for the 2022/23 tax year.

For earnings between £12,571 and £50,270, employees will be subject to the basic tax rate of 20 per cent.

The higher tax rate of 40 per cent will apply to income between £50,271 and £150,000.

For any income above £150,000, the additional rate of 45 per cent will apply.

If the employee earns over £100,000, their Personal Allowance will be decreased. For every £2 earned over £100,000, £1 from the Personal Allowance will be deducted.

Take note, the threshold to pay the additional rate of tax will decrease to £125,140 from April 2023.

Depending on the employee’s circumstances, they may be eligible for Income Tax reliefs, including Marriage Allowance.

National Insurance contributions

If your employee earns at least £242 per week, you will need to know about National Insurance.

As an employer, you will generally be liable to pay Class 1A or Class 1B employer National Insurance contributions (NICs), based on your employees’ expenses and benefits.

Your employees will also need to pay employee NICs, which will need to be deducted from their pay.

When employees are paying NICs, they are also earning the rate at which they qualify for the State Pension and other benefits.

Further information on NIC rates can be found here.

Student loan deductions

Whilst you may not class this as a tax, student loan repayments may need to be deducted from your employee’s pay, so you need to be aware of the rules.

As part of the New Starter Declaration, you should know whether your employee needs to repay a student loan.

However, you need to bear the different plans in mind to ensure that any deductions are correct.

The repayment requirements are as follows:

• Plan 1: 9 per cent of income above £20,195
• Plan 2: 9 per cent of any income over £27,295
• Plan 4: 9 per cent of their income over £25, 375
• Postgraduate loans: 6 per cent of income above £21,000

When running payroll, you will need to ensure all of the correct taxes are collected so that you meet your PAYE obligations.

As you take on more members of staff, the volume of this can be overwhelming, which is where outsourcing could come in handy.

Why not pass over the reins to WMT? Get in touch for payroll advice.