Working out TAX and NI Manually - Level 2 Foundation - (Unit 2)

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Can someone help, I am on Unit 2 and I just dont get the whole working out NI & Tax Manually. I have read the Osbourne book about 20 times and it just does not sink in. Can anyone explain in simple terms how to work this out, I have posted in the Foundation Level, but no one seems to be able to help, so i though you guys could help me!
thanks chrissie x

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Working out TAX and NI Manually - Level 2 Foundation - (Unit 2)

    Hi Chrissie,

    Can you please elaborate exactly what you intend to calculate manually or optionally, give an example. Calculating tax and NI manually is very simple if you get the basic right. It is what I enjoy doing.

    Though, I didn't do AAT payroll, I would not understand what the Unit 2 is all about. I shall be happy to help if you brief me more.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Working out TAX and NI Manually - Level 2 Foundation - (Unit 2)

    Tax:

    Take gross wage and deduct personal allowance which is currently £5035 per annum.

    If there is some left then the next 2150 is taxed at 10%.

    If there is still some left then the next 31150 is taxed at 22%.

    If there is still some left then it's taxed at 40%.

    There are billions of ifs and buts but theres the basics!

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Working out TAX and NI Manually - Level 2 Foundation - (Unit 2)

    Hi Chrissie,

    I will give you two or more examples to illustrate the manual calculation of tax and NI. If you are still not happy with it, you can give me your e-mail then I can futher explain to you by using P11 with different scenarios.

    In calculating the tax, it depends on the tax code you are given. For example, Mr D earns £1150 in month 1. His tax code is 503L.

    Solution:
    Look at the Pay Adjustment Tables Table A for the tax allowance for month 1 for tax code 503L. The allowance given is £419.92. This is amount will be inserted in column 4a of P11 card. the different of this, which is £730.08 is the taxable amount to be inserted in column 5 of P11 card.

    Now, you use Taxable Pay Tables Manual Method to calculate the tax due on £730.00(ignoring the pence). Look at the SR (Starting Rate) column for month 1, if the amount there is lesser than £730.00, then you use (BR)Basic rate table. The tax due is £139.09.

    How £139.09 was arrived at:

    You can only find £700.00 at Table B and the tax due on this is £154.00

    Now use the opposite table for Taxable Pay from £1 - £99. This the tax due on £30.00 is £6.60

    Use the Table B Subtraction Tables again opposite the previous table for the allowance given on month 1, this is £21.51

    =) £154.00 + £6.60 - £21.51= £139.09.

    Calculating NI on £1150.00

    With this, you will use CA38 Not Contracted-Out Table A assuming Mr D is between age 16 - 64 and IN NOT CONTRACTED-OUT EMPLOYMENT. Look for £1150.00 from the Monthly Table A column, if you don't find the actual amount, take the amount below but closer. Here, there is no £1150.00 in the table, so I took £1148.00 and the NI due on it is £80.30 (column 1e of the table).
    In conclusion, monthly pay of £1150.00 for month 1

    Gross pay 1150.00
    Tax 139.09
    NI 80.30

    I believe you have relevant tables and books for the calculation of this manual payroll.

    Manual payroll is a very informative work and a lot of things needs to be considered. There are books and tables(basically from HMRC office/website) that can easily help you. I hope with this lengthy explanation will not put you off. If you are still intrested, I can use P11 to illustrate the manual calculation for you using different tax codes, e.g K code, emergency code etc. Though, I can only do this at weekends.



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