CIMA F1 Syllabus C. Fundamentals Of Business Taxation - PAYE - Notes ^{10 / 10}

The employer deducts the tax from the employees wages

• It is called PAYE - pay as you earn

• Any problems are dealt with by the employee - the employer is just a collector

• It saves the government having to collect it - and reduces risks of late payment

Calculating PAYE

Again the taxable income and taxable expenses need calculating first

• There not as many allowable deductions for an employee (professional subs, business travel, charity donations)

• The employee does not have to pay tax until the income reaches a certain level - this is called the personal allowance

Example

A YEARLY salary is 12,000

The personal allowance is 4,000

Amounts up to 10,000 taxed at 10%

What is the taxable income?

Answer

12,000 - 4,000 = 8,000

What is the amount of tax payable?

8,000 x 10% = 800