Find out why a PAYE tax calculator can be helpful for tax calculations and for your business.
So, exactly what is PAYE? As an employee, your tax gets deducted at source or in other words, by your employer. This is referred to as PAYE or Pay as You Earn.
Pay as You Earn was first introduced in 1944. As the number of taxpayers increased, the need for a new tax collection method became the need of the hour.
This system ensures that the annual tax that you are required to pay is deducted on each pay day, right through the year.
The Revenue department sends a notice to your employer at the start of every year. This notice contains the details required to work out the exact amount of tax that will be due from you.
The notice is altered and updated to accommodate any changes to the existing tax structure that might have been implemented via the latest budget. Income tax as well as National Insurance Contributions are deducted by employers at source and you can view all the details via the PAYE calculator.
This system is different from the one that used to exist in that earlier the tax collection did not take place on a half-yearly or annual basis as it does now. In a way, this is a better method of tax deduction as the amount is not deducted as a lump sum.
Employees get a tax code and this can be used to calculate exactly how much tax they owe. Any change in your personal circumstances and related information that you have provided Revenue, will affect the tax paid by you. For example, if you get married, that information will have to be updated with revenue.
The information will eventually be sent to your employer and you will then have to pay tax on the basis of the new information that you have submitted. Understanding what is PAYE is one thing and being able to calculate it accurately, is another.
This is where the tax calculator comes into the picture. A PAYE Tax Calculator is an online tool that helps you calculate your take-home pay. This amount will be based on your annual income and will include various deductibles such as student loans or pensions. There are numerous PAYE tax calculators but all work on the same methodology.
Once you log into an online PAYE tax calculator, you are required to fill out the period you want to calculate tax for as well as your tax code and the variables or tax pay allowances in the salary.
Other details, such as how you are paid (i.e.: hourly, daily, weekly etc), have to be filled out. After you have added all the necessary information, the system will provide you with a complete break-down of your gross annual salary with all the necessary hourly, daily or monthly salary and tax illustrations.
The benefit of the PAYE calculator is that it gives you visibility of your tax liability and you no longer have to be worried about what is PAYE. It can help you be mentally prepared for that deduction that will show up on your salary slip on your payday.
Understanding PAYE and knowing how to use the PAYE calculator can be quite confusing. Seeing so many people struggle with using it, I decided to do something about it and hope that this information has given you a better understanding.