Cumulative PAYE Basis
To ensure an even spread of the tax liability is achieved, PAYE is normally calculated on a cumulative basis. This means that when an employer calculates the tax liability of an employee, they actually calculate the total tax due from 01st January to the date on which the payment is being made.
Tax for any week is computed by reference to the cumulative Tax Credits and Standard Rate Cut-Off Point (SRCOP) as at that pay period.
For the payroll period in which payment will be made in week 5, the cumulative tax credit is €317.31 and the cumulative SRCOP is €3,250.00.
For the payroll period in which payment will be made in week 7, the cumulative tax credit is €444.23 and the cumulative SRCOP is €4,550.00.
And so on...
Cumulative PAYE Basis: Tax Details issued by Revenue
The tax to be deducted in a particular week or month is the cumulative tax due from 01st January to that date, reduced by the amount of tax previously deducted. In other words on each pay period you view the year to date gross payroll, including the current period gross pay, and calculate the year to date tax due, this year to date calculation is reduced by the amount of tax already deducted to date (i.e. cumulative tax deduction up to the previous pay period).
The cumulative tax basis operates for both tax credits and SRCOP. Any tax credits and/or SRCOP which are not used up to the last pay period within the tax year, are carried forward to the next pay period for offset against tax deductions in subsequent pay periods within that same tax year.
Cumulative PAYE Basis: Cumulative PAYE Calculation
An important feature of the cumulative tax basis is that refunds of tax can be made to an employee through the payroll system where, for example, an employees tax credits and/or SRCOP are increased by Revenue or where previously the Week One/Month One basis applied restricting the allocation of year to date tax credits and SRCOP. PAYE refunds can only occur under the cumulative basis.
A PAYE refund will only occur where the cumulative (year to date) PAYE payable for the previous period is GREATER THAN the cumulative PAYE payable in the subsequent period, then the excess will be refunded either by;
- reducing the current period PAYE bill to fully utilise the refund due or
- to reduce the current period to nil and create a minus PAYE figure for the current period whereby the actual PAYE is refunded (paid back) to the employee.
Tax Credits are non-refundable. Tax credits are applied to tax bills to reduced the tax bill, where a tax has not been paid a refund cannot occur simply due to unused tax credits. A tax refund only occurs if tax has been previously deducted and is a refund of such tax.
SETTING THE BASIS OF PAYE CALCULATION IN COLLSOFT PAYROLL
As explained above, the basis of calculation is set at each individual employee level. To assign the correct basis of calculation at each employee level you must set up the employee record. Within the employee record there is a Revenue record within which you set the varying PAYE, USC, LPT and P45 details particular to the employee.
To set the basis of calculation;
- Access the Revenue for the employee.
- Within the PAYE/USC section flag the appropriate calculation basis for the employee to whom the record belongs.
Cumulative PAYE Basis: flagging the Cumulative calculation basis on the employee record