Payroll Terms Explained

HMRC - HM Revenue and Customs
HM Revenue and Customs deals with the collection of tax, national insurance and VAT. It was formed in 2005 with the merger of Inland Revenue and Her Majesty’s Customs and Excise.

Gross Pay
Total pay before tax (PAYE), national insurance and any other deductions are taken

Net Pay
Net pay is pay after tax (PAYE), national insurance and all other deductions are taken

NI – National Insurance:
Employers NI -is a payment by an employer based on the amount paid to an employee.
Employees NI - is a deduction made direct from the gross pay based on earnings.

PAYE - Pay-As-You-Earn
PAYE is a system used for deducting income tax from an employees pay.

P45 – details of employee leaving work
A P45 is a form that is issued when an employee leaves work. This totals the pay, tax and national insurance paid to date. A new employer uses this information to ensure the correct amount of tax is deducted and the correct tax code is used.

P46 – PAYE notice of new employee
A P46 is issued to a new employee without a P45. This is to find out the current tax and national insurance information to date.

P60 – certificate of pay
A P60 is issued at the end of the tax year and provides the employee with totals of pay, tax and national insurance accumulated within the tax year

Tax Code
Each employee is issued a tax code from HMRC depending on personal circumstances

Tax Year
The tax year runs from 6th April until 5th April the following year.

Ledgers Payroll Services
Valid XHTML 1.0 Strict