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How Do You Manage Your Cash Flow?
Posted: Jan 25, 2018
Accounting every single penny is indispensable for businesses. Accounting can throw light on areas where unnecessary expenditure can be avoided. Accounting firms aid in calculating your investments, maintain tax records and can give feedback on what will be your profit using a take-home pay calculator. Tax is needed for the economic growth of the country. Income tax and National Insurance is paid in the UK as per the tax bands.
Control your cash inflow and outflow:
With a long list of giveaways, it is vital to account your money in order to cut down on unwanted expenses and plan out frugal expenditure. Take-home pay calculations impact both businesses and individuals too. The amount that goes into your pocket is the money that stays after deducting liabilities from gross pay. This factor influences salary hike as an employer has to include the tax money along with the pay for an employee so that his net pay is sufficient to make ends meet. In the UK, the tax paid from income has a slab rate above which tax is applicable to an individual. The tax-free personal allowance is £11,500 which is the slab rate. The income beyond £11,500 is taxable according to various tax bands that changes with the increasing income.
Accounting firms can help with Take home pay calculators, so that, apart from personal allowance, the other costs that need to be covered are calculated. Accounting firms do the math for your financials so as to ensure that you pay your tax without arrears. Change in personal allowances every year is updated and your taxable money is revealed by accounting firms accordingly.
A pay-as-you-earn scheme is an approach to direct deduction before receiving the salary. Employers deduct the taxable amount based on financial feedbacks and advice that he/she receives from the outsourced accounting firm. Tax is deducted from the gross pay by the employers based on tax codes assigned to each employee. Accounting firms provide assistance in recording your sources of income and carry out the self-assessing formalities and guide you in informing HMRC which manages the PAYE system. The income tax had different bands based on the income received.
Income after allowances (2017-18)
Up to £ 31,500
- 33,500 to £ 150,000
Apart from income tax, there are other taxes, they are:
- National Insurance
- Capitals Gains Tax
- Inheritance tax
National Insurance: It is the tax paid by employees and employers to support the state funding scheme of reaching out to the sick and retired citizens. Like the income tax, National insurance has its own threshold and tax rate bands. The national insurance is classified into Class 1 (employers and employees of a company), Class 2 and Class 4 for self-employed based on their profits. Class 3 is voluntary which acts as a token to clear arrears in tax records if any.
Capitals Gains Tax: Capital gains tax is the amount one is liable to pay when a person gains profit by selling a capital asset. The capital gains tax can be paid only if the gain is above the prescribed amount to be paid.
Inheritance tax: It is the tax paid on the property of the expired person. Individuals are exempted from paying the inheritance tax on the grounds of:
- If the value of a property is less than the £325,000 threshold.
- Inheritance tax is excluded if the property is passed on to your partner
- If the property is passed to the offsprings, then the tax-free slab is increased to £ 425,000.
PAYE- PAY-AS-YOU-EARN scheme:
HM Revenues and Customs designed a scheme to deduct income tax and national insurance from their payroll. HMRC designates an employee with a tax code depending on the amount he or she receives as wages. The HMRC emphasizes the employer’s duty in collecting and keeping records on:
- The wages and deductions on an employee’s salary.
- Reports and payments paid to HMRC.
- Employee absences.
- Tax code amendment notices.
This is the most preferred way of paying their liabilities than paying it separately. HMRC assigns a tax code to every employee using which an employer deducts the required amount before handing over the wages in the employee’s hands.
The tax code disseminates information about how much tax-free allowance an employee is entitled to receive.If the employee resigns his job and moves onto a second one. The previous employer should give a P45 form. It is a form that provides details on how much tax an employee has paid from his salary. Accounting firms provide payroll services to aid employers in doing the maths for calculating the tax index for the employees. Accountants also manage the payroll database of the company.
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