Issue 64 June 2004 (Payroll News)

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Payroll News - 2004

Issue 64 June 2004

The personal tax summary (PTS)
Using the IR344 amendment form
Is your worker self-employed or an employee?
Employees using a special tax code (STC)
Making PAYE deductions more accurate

In this issue we tell you about personal tax summaries, correcting your employer monthly schedule after it's been filed and making PAYE deductions more accurate. Please find enclosed the latest index of articles covered in Payroll News up to June 2004.

If you have an employer topic you'd like to see covered in this newsletter or a question you would like answered, you can write to the Editor, Payroll News, PO Box 2198, Wellington or email us and we'll aim to cover the topic in a future edition.

Please pass this newsletter on to the person who deals with the payroll in your business.

The personal tax summary (PTS)

In the April edition of Payroll News we gave you the 2004 income tax timetable. Once again we want to remind you that some of your employees might shortly be receiving a personal tax summary (PTS) from us for the 2003-04 tax year. The PTS is an end-of-year tax square up which calculates a person's tax and shows if they have tax to pay or a refund due for the year. This form is preprinted using income and tax deduction details from the employer monthly schedules you file throughout the year. That's why it's important that your schedules are always accurate. If an employee questions you about the details on their PTS, please confirm that their income and tax deduction details match up with your wage records for the 2003-04 tax year.

If the PTS shows different income and/or tax deduction details from your wage records, this might mean that some adjustments need to be made to monthly schedules you have sent us in the past. If there are only a few changes to be made to your monthly schedules, these can be done over the phone by calling us on 0800 377 772. Otherwise, send us an Employer monthly schedule amendment (IR344) form (see the following article for how to make amendments).

Please remember that your employees will need to call us personally to provide their individual changes so their PTSs can be updated.

Note

While we will be sending a PTS to some people, there are others who will need to request one from us. Nationwide newspaper advertising in July will give details of who needs to do this and what they have to do.

Using the IR344 amendment form

The Employer monthly schedule amendment (IR344) form can only be used for amendments to one month's PAYE details. If changes cover more than one month you should use a separate form for each month. Enter your name, IRD number, and the period you are changing on the top of the IR344. You can amend an employee's pay details by writing in their name and IRD number, the figures you originally sent in, and the changes to be made. You can amend up to three employee details on each form.

Using the IR344 is the most convenient and easy way of amending monthly PAYE details. However, if you are intending to write a letter to show the amendments, please make sure you include:

your name
your IRD number
the period you are changing
the name and IRD number of the employees whose details you are amending
original details sent in and details of changes to be made.

Electronic amendments

If you file your employer monthly schedule electronically and you only want to make a few changes, you can make amendments by phoning us on 0800 377 772 or complete an Employer monthly schedule amendment (IR344) form and send it to us.

You can get a copy of the form from our website or by phoning INFOexpress on 0800 257 773.

Is your worker self-employed or an employee?

In previous editions of Payroll News, we talked about your responsibilities as an employer. We also highlighted the importance of making deductions from the payments you make to the people who work for you and paying these deductions to us on time.

It is important to know whether your worker is self-employed or an employee because tax, student loan and accident compensation (ACC) laws treat the two groups of workers differently. It is illegal to treat a true employee as self-employed to avoid deducting tax. If you do this, you may be prosecuted and fined. You will also be liable for the PAYE that should have been deducted, including penalties and interest that may apply.

As a general rule, if you control how and when a person's work is done, that person is your employee. In some situations, it can be difficult knowing whether the person who works for you should be treated as an employee or self-employed.

If you need help deciding whether your worker is an employee, read our pamphlet Self-employed or an employee? (IR336). You can read it on our website or order a copy by phoning INFOexpress on 0800 257 773. If you're still not sure, please phone us on 0800 377 774.

Employees using a special tax code (STC)

Most of your employees can use the standard tax codes listed on the Tax code declaration (IR330) form to pay the right amount of tax (for example "M", "S", "SH" or "ST") or the rate of withholding tax.

Who can use a special tax code?

For some people, due to their circumstances, the standard tax codes don't deduct the right amount of tax for them. In this case, they can apply for a special tax code. A special tax code is a tax deduction rate worked out to suit individual circumstances. It's useful in the following situations:

having a second job or other income over and above the main job
receiving a benefit or ACC, and working
receiving an overseas pension that is taxable in New Zealand
having business losses to carry forward from previous years, but earning a salary or wage now
having a student loan and wanting to pay it off faster.

What do you need to see?

If your employee shows "STC" on their Tax code declaration (IR330) form, they must supply you with a completed and current Special tax code certificate (IR23). A certificate is only valid if:

the person named on the certificate is the person working for you
it has been properly authorised by Inland Revenue
it is for the right tax period
the certificate shows the deduction rate
the employee has signed it.

If your employee does not show you a special tax code certificate, you must deduct at the normal rate of tax and other deductions.

Is the certificate current?

Some employees who have received a special tax code certificate for the current year assume that this will automatically apply for the following year. The certificate shows the period it applies for and you will need to check that the certificate applies to the right tax year when they give it to you.

When that year ends, the employee must show you a new Special tax code certificate (IR23) or complete a new Tax code declaration (IR330) form. For more information on special tax codes, please read our Employer's guide (IR335). You can get a copy from our website or phone INFOexpress on 0800 257 777.

Making PAYE deductions more accurate

It's been our experience that some employees are often unsure which tax code to use and in many cases select the wrong one, which can result in tax to pay at the end of the year.

What are we doing to help?

Using the information from the Employer monthly schedule (IR348) you send us, we can identify people who might be on the wrong tax code (and may therefore be paying the wrong amount of tax) and help them get back on track. If it looks likely that an employee is using the wrong tax code we'll write to them directly asking them to check. If they do need to change their code they'll ask you for a new Tax code declaration (IR330) form.

Two of the main reasons we might write to an employee are if they are using the "M" tax code for more than one job or they're liable for student loan repayments and are not using an "SL" tax code.

More than one "M" tax code

An employee can only use an "M" tax code for their main job. If an employee is using an "M" code on more than one job, we will write to them suggesting the code we think they should use for their extra jobs, such as "S". This can affect people receiving a benefit as it's usually taxed on the "M" code.

Not using an "SL" tax code

If an employee has a student loan and earns over the repayment threshold (currently $16,172 a year) they must make regular repayments on their loan. This means they must use the "M SL" tax code for their main job and "S SL" or "ST SL" or "SH SL" for any other jobs.