Notes for Sage Payroll – Osborne Training

Notes for Sage Payroll – Osborne Training Osborne Training Notes on using Directors Table Method, DEO, AEO and Tax codes

1 Notes for Sage Payroll – Osborne Training Contents Using Director (Table Method) in Sage Payroll ....................................................................................... 1 DEO & AEO .............................................................................................................................................. 2 Deduction from earnings orders (DEOs) ............................................................................................. 2 Attachment of earnings orders (AEOs) ............................................................................................... 3 What the letters mean in Tax Codes ................................................................................................. 5 Using Director (Table Method) in Sage Payroll An employee who is a director can have their national insurance (NI) contributions calculated in one of two ways:  Table method  Cumulative year to date method Whilst either of these two methods can be used during the tax year, government legislation states that over a whole tax year, a director must pay NI contributions using the cumulative year to date method. When an employee's status is set to Director (Table Method), the deduction for NI is made using the weekly or monthly thresholds, depending on the pay frequency of the director. It's calculated in the same way as a non-director until their final pay period when their NI contributions automatically recalculate using the cumulative year to date method. For directors using the table method, NI automatically recalculates in the final pay period of the tax year. These are: Weekly paid Week 52 or 53 employees Two weekly paid Week 51, 52 or 53 employees Four weekly paid Week 49, 50, 51, 52 or 53 employees Monthly paid Month 12 employees

2 Notes for Sage Payroll – Osborne Training There is nothing different you need to do with directors as part of the year end routine. For directors who leave part-way through the tax year, NI recalculates using the cumulative method when you select the Director's final pay check box within Maintain Employees' Pay. The final calculations sometimes differ from those made throughout the rest of the tax year, as they look to the annual Primary Threshold and Upper Earnings Limit rather than the weekly or monthly Primary Threshold and Upper Earnings Limit, which have been used for the other calculations. This recalculation can result in the NI for the final pay period being higher or lower than usual. DEO & AEO Deduction from earnings orders (DEOs) Deduction from earnings orders (DEOs) are a way of collecting child maintenance directly from a paying parent’s earnings or pension. The paying parent is the parent who doesn’t have main day-to-day care of the child. When you’ll get a DEO You’ll be sent a deduction from earnings order (DEO) if one of your employees is a paying parent who:  chooses to pay child maintenance direct from their earnings  doesn’t pay the correct amount of child maintenance on time  doesn’t pay at all The DEO will be sent to you by either the Child Maintenance Service or the Child Support Agency (CSA). What you need to do You must deduct the amount of child maintenance stated on the DEO from your employee’s net earnings or their pension and pay it to the Child Maintenance Service or CSA. This will include any arrears that are due.

3 Notes for Sage Payroll – Osborne Training Other court orders against your employee You could get a DEO from the CSA and an attachment of earnings order (AEO) from a court. Attachment of earnings orders (AEOs) Overview Attachment of earnings orders (AEOs) are another way of collecting child maintenance from a paying parent’s earnings or pension. The paying parent is the parent who doesn’t have main day-to-day care of the child. AEOs are like deduction of earnings orders but they are issued by a court, not the Child Maintenance Service or the Child Support Agency. Scottish courts issue different orders to enforce maintenance payments. You will usually receive a current maintenance arrestment. Find out more about Scottish arrestments. When you’ll get an AEO You’ll get an attachment of earnings order (AEOs) if one of your employees is a paying parent who:  doesn’t pay the correct amount of child maintenance on time  doesn’t pay at all Contact the court by letter within 10 days of getting an AEO if you don’t employ the person named in it. What you’ll need to do You must sign a statement that says how much your employee earns if the court asks you to. Contact the court by letter within 7 days if you find out that a new employee has an existing order. Include details of your employee’s earnings or the average you think they’ll earn - an existing order might affect how much you have to deduct.

4 Notes for Sage Payroll – Osborne Training You can be fined by the court if you don’t take pay for an AEO or or you don’t explain why you’re not taking pay. You won’t be fined for not taking money for the AEO if the first pay day is less than 7 days after the date you get the court order. Make deductions from your employee’s pay The AEO will tell you:  how much your employee owes, unless the order is for regular maintenance  how often you’ll have to take money - usually this will be weekly or monthly  how much you should take each time  the amount below which you must not make a deduction - ‘the protected earnings rate’ (PER) Find out:  what counts as your employee’s earnings  how to make deductions You’ll be told by the court in writing if the PER rate changes. Make payments The AEO will tell you where to make payments. Usually, this will be to the court and you can pay using the Centralised Attachment of Earnings Payments System (CAPS). Include the name of the employee and the case number - you’ll find this on the AEO. Change when you make deductions You can ask the court to amend the order so you can make monthly or weekly deductions, depending on how you pay your employee. If the AEO came from a magistrate’s court, your employee will need to ask the court to amend it. Stop making deductions You’ll be told by the court in a letter if you can stop making deductions because

5 Notes for Sage Payroll – Osborne Training  the debt’s been paid in full  the order’s been cancelled You must:  check the amount of the final deduction - it may be less than the usual deduction  stop deductions as soon as possible or within 7 days of being told  send all money deducted to CAPS Contact the court within 10 days if your employee resigns. The AEO will be cancelled after your employee’s last pay day. What the letters mean in Tax Codes Letters in an employee’s tax code refer to their situation and how it affects their Personal Allowance. Code How tax is deducted When this code is usually used 0T From all income - there is no When an employee hasn’t given you a P45 or Personal Allowance enough details to work out their tax code, or when their Personal Allowance has been used up

6 Notes for Sage Payroll – Osborne Training Code How tax is deducted When this code is usually used BR From all income at the basic rate For a second job or pension D0 From all income at the higher For a second job or pension rate D1 From all income at the additional For a second job or pension rate L At basic, higher and additional For an employee born after 5 April 1938 who rates depending on the amount is entitled to the standard tax-free Personal of taxable income Allowance. The most commonly used letter. M At basic, higher and additional For an employee whose spouse or civil rates depending on the amount partner has transferred some of their Personal of taxable income Allowance N At basic, higher and additional For an employee who has transferred some of rates depending on the amount their Personal Allowance to their spouse or of taxable income civil partner NT No tax is deducted Very specific cases, eg musicians who are regarded as self-employed and not subject

7 Notes for Sage Payroll – Osborne Training Code How tax is deducted When this code is usually used to PAYE T At basic, higher and additional When HM Revenue and Customs (HMRC) rates depending on the amount needs to review some items with the of taxable income employee Y At basic, higher and additional For an employee born before 6 April 1938 rates depending on the amount who is entitled to a bigger Personal Allowance of taxable income If your employee’s tax code has ‘W1’ or ‘M1’ at the end W1 (week 1) and M1 (month 1) are emergency tax codes and appear at the end of an employee’s tax code, eg ‘577L W1’ or ‘577L M1’. Calculate your employee’s tax only on what they are paid in the current pay period, not the whole year. Tax codes with the letter ‘K’ The letter K is used in an employee’s tax code when deductions due for company benefits, state pension or tax owed from previous years are greater than their Personal Allowance. Multiply the number in their tax code by 10 to show how much should be added to their taxable income before deductions are calculated. Example: An employee with tax code K475 and a salary of £27,000 has taxable income of £31,750 (£27,000 plus £4,750). The tax deduction for each pay period can’t be more than half an employee’s pre-tax pay or pension.