VAT PAYE Income Tax, The Pay As You Earn (PAYE) system is a method of paying Income Tax on remuneration. The employer is mandated to deduct tax from salary or pension earnings before paying out the net salary or pension.
This article is intended to provide you with a simple and logical introduction to some basic principles of VAT PAYE Income Tax as it applies to employees.
The Income Tax Act [Chapter 23:06] specifies what elements of an employee’s remuneration or earnings are subject to tax and at what rate of tax. It also deals with what income is exempt from tax and what deductions are allowed from these earnings, prior to tax being calculated.
Assume then for a moment that everything you earn – be it in cash, benefits, or an item of value given instead of cash – is subject to some form of tax. However, the determination of the value and its associated tax liability in respect of any of these forms of payments will differ in some cases.
The official tax table operates on a progressive rate of taxation system, (i.e. the higher your earnings, the greater percentage tax you pay on each bracket of earnings). When your earnings reach a certain amount, the percentage stops increasing and a flat rate of tax becomes applicable for any earnings above this level – that is Marginal Tax Rate (MTR).
PAYE (Pay As You Earn) is a system used by employers and pension providers to deduct Income Tax and National Insurance contributions from employees’ wages or pensions before they are paid. If you are an employer, you are required to operate PAYE as part of your payroll.
