PAYE system – methods of calculation
Methods of calculating tax under PAYE
1. Cumulative basis (a) no changes in monthly figures (b) changes in monthly figures
2. Emergency basis (a) with PPS supplied (b) no PPS
3. Week 1/ Month 1
PRSI is always calculated on a week 1 basis.
Calculate AX & AL PRSI credit on weekly amounts.
To determine PRSI class for monthly salaries: * 12/52
If total PRSI is required, use combined Employee & Employer figure.
In exam questions USC can usually be calculated on a week 1/month 1 and is more time effective.
PAYE is calculated on all taxable Schedule E less allowable Pension Contributions.
USC & PRSI: Pension Contributions are not deductible, and calculations are based on total Schedule E.
Take-home pay
€ € Salary x
Bonus/commission x Taxable expenses x
BIK 0
xx
less: Pension contribution (x)
xx Non-taxable expenses x
Statutory deductions:
PAYE (note) x PRSI (%) x
USC (note) x
(x) Non-statutory deductions:
TU subs, Credit Union etc. x BIK contributions x
(x)
Net pay xx
Question 3 Autumn 2016 (reworked)
Barbara Smith
Barbara has been employed by Troy Toys Limited for the past six years and she is
paid monthly. Her gross salary is €4,200 per month. In addition to this Troy Toys
pays for Barbara’s gym membership at a cost of €100 per month and she is allowed
to eat all her meals in the staff canteen that costs Troy Toys €50 per month per
employee. In addition to this Barbara has been supplied with a company car as she
regularly has to drive around the country for meetings. The annual benefit in kind
on this car is €3,600.
Barbara has monthly tax credits of €413 and a monthly standard rate cut off point
of €3,150. Her USC is at the standard thresholds and rates.
Alan Bennet
Alan started in Troy Toys on 1st March 2019. It is his first job; he did not contact
Revenue and was unable to supply you with his PPS number. Alan is paid €3,600
per month.
Calculate both Barbara and Alan’s monthly take-home pay for December 2019.
Barbara € €
Gross pay for statutory calculations
Salary 4,200
Gym membership 100
Canteen 0
Car BIK 300
4,600.00
Take-home pay
Salary 4,200.00
Income Tax:
€3,150 @ 20% 630
€1,450 @ 40% 580
Total 1,210
less: tax credits 413
Tax 797.00
PRSI:
€4,600 @ 4% 184.00
USC:
€1,001 @ 0.5% 5.01
€655.17 @ 2.0% 13.10
€2,943.83 @ 4.5% 132.47
Total USC 150.58
Net pay 3,068.42
Payroll question: Glynis
Glynis has been employed by Lugalla Ltd. for a number of years. Details of her
monthly salary and deductions for each of the months January to October 2019 are
as follows:
€
Salary 3.600
Pension contribution 180
Savings club deduction 400
3.020
The RPN details used for payroll calculation in months 1 to 10 showed a monthly
tax credit of €356 and a monthly standard rate cut off point of €3,150 for Glynis.
For month 11 Glynis received a pay increase and her revised salary and deductions
are:
€
Salary 3.780
Pension contribution 190
Savings club refund 4.000
7.590
In addition to the pay increase from the 1st November 2019, Glynis was given a
company car and the annual benefit in kind has been calculated at €5,040.
An RPN was received in time for the calculation of the wages for month 11 of the
2019 tax year showing revised monthly tax credits of €396 and a monthly standard
rate cut off point of €3,250
Calculate Glynis’s take-home pay for month 11, assuming standard USC
rates and thresholds apply.
Glynis: take home pay October 2019
€ €
Salary 3,780.00
Less pension contribution 190.00
BIK -
3,590.00
Statutory deductions:
PAYE (note 2) (42.00)
PRSI {(€3,780+€420) *4%} 168.00
USC (note 3) 132.58
258.58
3,331.42
Savings club refund 4,000.00
7,331.42
Note 1: pay to end of October:
€ 1 mth 10 mths
Salary 3,600 36,000
Pension 180 1,800
Taxable 3,420 34,200
3.150 @ 20% 630
270 @ 40% 108
3,420 738
Tax credits 356
382 3,820
Note 2: PAYE
€ Mth 11
Salary 3,780
Pension (190)
BIK (€5,040/12) 420
Taxable 4,010
p/e October 34,200
cumulative 38,210
Revised SRCOP (€32250*11) 35,750
@20% 7,150
@40% (€2,460) 984
Total tax 8,134
Revised tax credits (€396*11) 4,356
Cumulative tax 3,778
Tax paid 3,820
Tax this month (42)
Note 3: USC
€ €
@ 0.5% 1,001.00 5.01
@ 2.0% 655.17 13.10
@ 4.5% (4,200.00 – 1,656.17) 114.47
132.58
Payroll question types Cumulative basis - no monthly changes
Simon is paid an annual salary of €48,000. He makes a monthly contribution to
the pension scheme of €1,000 through payroll. He has the use of a company car
for the year and the monthly benefit in kind is €600. He is single and has a
monthly standard rate cut-off of €2,879.17 and monthly tax credits of €275.
Calculate Simon’s net pay for January 2019.
Solution: Simon € €
Gross salary 4,000.00
BIK 600.00
4,600.00
Less: pension contributions (1,000.00)
3,600.00
(1) PAYE 3,600.00
€2,879.17 @ 20% 575.83
€720.83 @ 40% 288.77
864.16
Less: tax credits 275.00
589.16
(2) PRSI €4,600 @ 4% 184.00
(3) USC
€1,001@ 0.5% 5.00
€655.17 @ 2% 13.10
€2,943.83 @ 4.5% 132.47
150.57
Take-home pay:
Salary (excl. BIK) 4,000.00
Pension contributions (1,000.00)
3,000.00
PAYE (1) 589.16
PRSI (2) 184.00
USC (3) 150.57
923.73
Net pay 2,076.27
Cumulative basis - monthly changes
See Glynis example
Emergency basis – no PPS
Alan started in AF2 on 1st March 2019. This was his first job, no RPN has been
received from Revenue and Alan was unable to supply his PPS number. Alan is paid
€3,600 per month.
All of Alan’s salary of €3,600.00 will be taxed at 40% for PAYE and 8% for USC.
PRSI will be deducted as normal.
Emergency basis with PPS number
Paul started with AFZ straight from college on 1 January 2019 and this is his first
job. No RPN has been received from Revenue. He gave AFZ his PPS number on
commencement of his employment. He is paid €4,200 per month.
January: Alan will be given a COP of €2,942 and tax credits of €0. USC will all be at
8% and PRSI as normal.
February: as for no PPS, all PAYE at 40%.
Week 1/ Month 1 basis
John is paid a salary of €57,600 per year. He makes a monthly contribution to the
company pension scheme of €400. He uses a company car for the full year and the
annual benefit in kind for the car is €6,000. You have the following details for
John:
Monthly SRCOP €2,816.67
Monthly Tax Credits €275.00
Normal USC rates apply
Month 1 basis applies
Calculate John’s take home pay for March 2019.
Other question types
Self-employed USC and PRSI
Sally is a self-employed crafter. She has Case I tax adjusted profits of €125,000 in
2016. She paid €12,000 into a Revenue Approved Pension scheme in 2016. Sally
is 45 years old.
Question 5 May 2019
Jane is self-employed and has Case I tax adjusted profits of €300,000. She made a
retirement annuity contribution of €30,000 which qualifies for tax relief in 2018.
Calculate the total PRSI and Universal Social charge payable by Jane for the 2018
tax year. (4 Marks)
Retirement annuity is not deductible for PRSI & USC, Jane’s liability will be
calculated on €300,000
€ €
PRSI: (class S1)
€300,000 @ 4% 12,000.00
USC: (@ 2019 rates)
€12,012 @ 0.5% 60.06
€7,862 @ 2% 157.24
€50,170 @ 4.5% 2,257.65
€29,956 @ 8% 2,396.48
€200,000 @ 11% 22,000.00
26,871.43
Taxation of Benefits: Q4 May 2016
Kevin has been employed by AB Solutions Ltd for the last ten years and he is paid
on a monthly basis. For the month of July 2015, he earned €4,250 gross. In
addition to his salary Kevin has been provided with a number of benefits as follows:
A bicycle for cycling to and from work each day. This costs AB Solutions Ltd €800
when they purchased it for Kevin in April 2015.
Subsidised canteen meals which are provided to all employees. Kevin estimates this
saves him €120 per month on food.
Kevin is employed in the engineering department and AB Solutions Ltd paid his
annual subscription to Engineers Ireland Ltd amounting to €1,200.
Gym membership of €65 per month.
The month 1 basis applies. Kevin has a monthly SRCOP of €3,150 and a monthly
tax credit of €275. His USC monthly cut off point is €1,001.
Expenses and BIK
Reimbursed expenses: not Schedule E and not taxable. Flat Rate expenses: not Schedule E and not taxable
Round sum expenses: Schedule E and taxable
Exempt benefits
1. Bicycle:
Exempt up to maximum of €1,000 including equipment (EU standards). Available to all employees.
Can only be claimed once every five years. Must be purchased by employer.
Must be used for all or part of journey to work.
2. Subsidised canteen:
Exempt if available for everyone.
3. Professional membership: Exempt once it is relevant to his role in the business.
4. Gym membership: Assessable benefit
Preferential loans:
Assume all loans are interest payment only and the capital is fully payable at the termination
of the loan unless informed otherwise.
A. Bill was given two loans by his employer in 2016
1. €100,000 towards an addition to his family home @ 2% interest
2. €20,000 to purchase a new car @ 14%
Bill: (1) €2,000 {€100,000 @ (4% - 2%)} addition to family home qualifies
` as loan for PPR.
(2) No BIK as rate charged by employer exceeds Revenue’s specified rate.
B. Amy has the following loans from her employer since 2015.
1. €20,000 @ 4% to purchase new furniture for her first home
2. €10,000 @ 13% for medical bills incurred in respect of her new baby.
3. €80,000 @ 4% towards purchase of an apartment to rent.
Amy: (1) €1,900 {€20,000 @ (13.5% - 4%)} loan for furniture does not
qualify as PPR loan.
(2) €500 {€10,000 @ (13.5% - 13%)}
(3) €7,600 {€80,000 @ (13.5% - 4%)} apartment is for rent not residence.
C. Ritchie works for a bank and has been provided with the following loans
since 2014.
1. €200,000 @ 3% towards purchase of his family home.
2. €100,000 @ 3.6% for improvements to his home.
3. €40,000 @ 3.5% to build a studio in the garden for his wife who is a
painter.
The bank’s rate for customer mortgages is 3.5%
Ritchie: Because he works for a bank the rate available to customers for
mortgages (3.5%) becomes the specified rate.
(1) €1.000 {€200,000 @ (3.5% - 3%)}
(2) No BIK, improvements count at PPR rate and the rate charged of 3.6%
exceeds the adjusted specified rate of 3.5%.
(3) €4,000 {€40,000 @ (13.5% - 3.5%)} the studio is business, not PPR.
D. John was given a loan by his employer on 1st February 2019 of €60,000 @
3.5% to purchase a holiday home. John then sold the home and repaid the
loan on 30th November 2019
John: €5,000 {€60,000 @ (13.5% - 3.5%) * 10/12} loan was for 10
months.
Note: Where the loan is used for employee’s PPR the BIK interest will be treated as interest
paid for the purpose of mortgage interest relief.
Medical insurance premiums
Since October 2013 tax relief on medical insurance premiums is limited to the first €1,000 of the gross premium per adult and €500 per child.
An individual purchases a policy costing €800. They are entitled to tax relief of €160 (€800*20%), meaning the net cost of the policy is €640 and the
individual pays this net amount to the insurance provider.
The insurance provider then claims the tax credit on behalf of the policyholder (even if they are not a taxpayer). This is known as Tax Relief at Source (TRS).
Premium paid by employer: As it is a payment of an employee expense by the employer a BIK will arise.
In the example above the employer must refund the TRS of €160 to Revenue (the individual is entitled to the tax relief, not the employer). The
employer has now paid the gross amount of the premium €800 (€640 to insurance provider and €160 refunded to Revenue), and therefore the
employee is liable for BIK on the full benefit of €800. The employee is now entitled to claim the tax relief directly either by
requesting it be added to his Tax Credits or including it on his Taxation Return.
Other BIK
Provision of Creche/Childcare facilities.
Provision of service or payment of expenses by employer.
Employer provided accommodation:
See exempt benefits (3.4.1 no.1)
Market rent plus costs borne by the employer
Actual rent paid by employer less employee contribution.
Sample narrative questions
Write a brief note explaining the Register of Employees.
The register must be maintained at the normal place of employment.
The employer must ensure a record is created for all employees,
including temporary employees.
The following information must be included for each employee: name,
address, PPS number, date employment commenced/ended.
The employer must ensure the correct PPS number is used for each
employee by checking against appropriate documentation such as
Public Services card or payslip from previous employer.
In addition to payroll information for all employees what other
information must employers submit to Revenue as part of their PAYE
system obligations?
• Date on which an employee leaves the employment.
• When an employee is granted a career break.
• When an employee dies while in employment.
• In the case of casual workers, a date of leaving if the employee
has not been paid for a period of three months.
Sections 11.1 and 11.2 should be carefully studied for
potential Narrative questions and MCQs
PRSI
Employer PRSI
Class A threshold for the higher rate of employer PRSI is €386
Class A Employee PRSI
The Class A employee PRSI rate is 4%.
For gross earnings between €352.01 and €424, the amount of the PRSI
charge at 4% is reduced by a tapered weekly PRSI Credit.
The maximum weekly PRSI Credit of €12.00 applies at gross weekly
earnings of €352.01.
For gross weekly earnings over €352.01, the maximum weekly PRSI Credit
of €12.00 is reduced by one-sixth of weekly earnings in excess of €352.01.
There is no PRSI Credit once gross weekly earnings exceed €424.
Calculation of PRSI credit
The calculation of the PRSI charge for Class A with gross weekly earnings between
€352.01 and €424, involves 3 separate calculations: The following example shows
how to calculate the PRSI Credit for gross weekly earnings of €377.
1. Calculate the PRSI Credit:
Maximum PRSI Credit €12.00
One-sixth of earnings in excess of €352.01
(377.00 – 352.01 = 24.99 / 6) (€ 4.17)
Reduced PRSI Credit € 7.83
2. Calculate the PRSI charge @ 4% €15.08
3. Deduct the Reduced PRSI Credit from the 4% PRSI Charge
Weekly PRSI Charge € 7.25
PRSI for self-employed
Self-employed people, other than self-employed company directors, must register
with the Revenue Commissioners for PRSI purposes. Under the self- assessment
system, PRSI is paid to the local tax office together with any other payment due.
Self-employed company directors pay their PRSI under the PAYE system.
Minimum/Flat rate Self-employed Payments:
Self-employed contributors with annual self-employed income over €5,000 pay
Class S PRSI at the rate of 4%, subject to a minimum payment of €500.
The flat rate of payment of Voluntary Contributions made by a former self-
employed contributor is €500.
USC
1. Taxpayers are always liable to USC on a single assessment basis.
2. USC is normally taxed on a cumulative basis but using wk1/mth1 will work in most situations.
3. If emergency basis use 8% rate.
4. Main exemptions:
Social welfare payments: Exempt BIK: DIRT: Rent a Room/Childcare services relief.
5. No marginal relief, once taxpayer exceeds €13,000 USC is calculated on all chargeable income.
6. Exceptions to basic rates and thresholds:
Aged ≥ 70, income ‹ €60,000:
Aged ‹ 70, income ‹ €60,000 + full medical card All income above €12,012 is taxed @ 2% rate
Self-employed exceeding €100,000 » 3% surcharge
7. DIRT is assumed to include USC liability
8. In general, all Dept. of Social Protection payments including some that are subject to Income Tax are exempt from USC.
9. There are no specific credits or reliefs allowed against USC
10.Outside of anything above, USC tends to follow Income Tax. BIK
Rent a Room relief, TaxSaver commuter tickets Statutory redundancy Covenants
Maintenance payments
Taxation exam
Avoid last-minute revision.
Time allocation, each mark = 1½minutes » full question = 30 mins.
Allow time at start and end, 10 – 15 mins.
Expect a nasty surprise somewhere in the paper – it’ll only be a few
marks
Start: Read all questions
o Decide order
o Start with easiest to answer eg TAP (low hanging fruit)
o Underline/highlight
Theory question(s)
o Read carefully
o Allocate time
o Explain or define
o Any amounts?
o Use sentences
o Leave spaces
o TRM?
MCQs: Answer all/tick only one answer
All questions
o Attempt 5
o Good layout
o Space
o TRM
End: review if possible, especially MCQ & TAP
Questions for Zoom Webinar
Q1 Calculate the total PRSI liability for each of the following in the pay period quoted and specify the PRSI class applicable. Monthly pay infers a
calendar month.
I. Weekly pay €300
II. Monthly pay €1,540
III. Monthly pay €2,080
IV. Weekly pay €400
Q2 Edna Noonan joined the company on 1 December 2019 and received a monthly salary of €1,560 for December. At 31 December you had not received an RPN notification and Edna has failed to provide you with a PPS
number. This is Edna’s first employment.
Calculate all statutory amounts payable to Revenue in respect of Edna for 2019.
Q3 Joanne was provided with a company car on 1 September 2019. The cost of the car was €30,000 and Joanne agreed to directly purchase €80 of
petrol each month to cover private travel. During the period to 31 December 2019 she travelled 16,200k, 25% of which was agreed as private
motoring.
Calculate Joanne’s BIK for 2019
Payroll Questions Question 1 You have been asked to calculate the take home pay of the following two
employees of SW Ltd.
Alison Cross
Alison commenced employment with the company on Monday 16th December 2019
(week 51 of the tax year). Details from her previous employment shows the
following:
Date of leaving 18 November 2019
Week number 46
Gross pay €36,000
Tax deducted €5,208
Weekly cut-off point €630
Weekly tax credit €60
Details of her pay from SW Ltd. are:
Week 51 Week 52
Gross pay 820 340
Alison did not receive any income between 18 November and 19 December, an RPN
notification received by SW Ltd on 18 December showed the same tax credits and
srcop as above.
Barry Parker
Barry is a director of the company. Details regarding his income and deductions are
as follows:
Salary: €83,200 per annum paid weekly.
Payment for business expense based on receipts supplied (week 52) - €550
Allowance to cover purchase of drinks for staff at Christmas party (week 51) -
€500. The company pays all expenses through the payroll system
In addition to the above Barry has an interest free loan from the company since 1st
January 2011 amounting to €18,000. The money was used by Barry to finance the
purchase of a new boat.
Barry’s weekly tax credit is €100, and his weekly cut off point is €800. Tax is
calculated on cumulative basis and after week 50 tax paid to date was €19,400.
PRSI Class S applies to Barry.
Requirement
Calculate both Alison’s and Barry’s take-home pay for weeks 51 & 52.
You should calculate USC on a week1/month1 basis for the weeks involved.
Question 2
You have been asked to manage the payroll of SWIS Ltd (Employer registration no.
1357924J). Details regarding two of the employees are as follows.
Kevin Press PPS no. 1236549R
Kevin commenced employment with SWIS Ltd on 16th December 2019 (week 51 of
the tax year).
RPN supplied by Revenue shows the following details:
Date of leaving 15 Nov 2019
Week number 46
Gross pay €36,000
Tax deducted €4,919
Total PRSI €5,310
Employee PRSI €1,440
Weekly tax cut-off point €630.77
Weekly tax credit €63.46
USC deducted €1,099.97
USC was deducted by his previous employer using the standard thresholds
Both PAYE and USC were deducted on a cumulative basis.
The RPN from Revenue indicated that week1/month1 basis applies.
Details of Kevin’s pay and deductions for weeks 51 and 52 are as follows:
Week 51 Week 52
Week 51 € €
Gross pay 340 520
Contribution to pension scheme 40 40
Contribution to Christmas party 50
Davina Hirst
Davina has been employed by SWIS Ltd for many years. She is paid €340 gross per
week and contributes €20 per week to an approved pension scheme. Her annual
tax credits for 2019 are €3,300 and her annual standard rate cut-off point is
€33,800.
Requirement:
Calculate net take home pay for weeks 51 and 52 for Kevin & Davina.