You can create UK Payroll deduction codes in the Deductions tab in Payroll Set-up > Earnings and Deductions (when you use Dayforce in UK English culture setting).
The functionality for creating UK deduction codes is similar to what is available for Canadian and US deduction codes, including the ability to configure the following:
- How the application calculates deductions (for example, based on a flat amount or a percent of earnings).
- The limits to how much the application can attempt to collect for deductions.
- The payees who can receive deductions, if applicable.
- Whether the application allows the deduction to enter arrears.
Once you configure a deduction code, you can assign it to an employee's payroll elections, and you can also enter manual entries for the deduction in the Payroll feature.
Additionally, the following system deduction codes are shown in the Deductions tab to support UK Payroll:
- Arrestment Admin Fee: Used to collect the arrestment admin fee. See Arrestments in UK Payroll.
- Student Loan: Used to collect statutory student loan amounts. See Statutory Student Loans for UK Employees.
These system deduction codes are shown at the bottom of the list and are non-editable. You do not need to add these deductions to an employee's payroll elections, they are calculated automatically.
The following sections describe functionality for UK payroll in the General and Tax and Compliance subtabs of the Deductions tab. Other tabs, which include Parameters, Pay Groups, Limits, and Payees, function similarly for non-UK deductions.
General Tab
In the General subtab of the Deductions tab, you can define the same settings for UK codes as for codes of other countries, except those settings that are applicable to a specific country only. The Allow Arrears checkbox is an example of a setting you can use for UK, Canada, and US allowance codes.
The Stop Payment Method setting is shown in the General tab to allow you to configure how Dayforce stops calculating a deduction in cases where employees enter sick or parental leave. See UK Stop Payment Method.
Tax and Compliance Tab
In the Tax and Compliance subtab of the Deductions tab, system UK tax and compliance codes are shown in the list.
As is the case for US and Canadian deductions, you can select a tax and compliance code on which to base a new deduction, or you can click Add to create custom tax and compliance details.
Moreover, the following functionality is included in the United Kingdom tab to support UK payroll:
- The Tax Type drop-down list is shown for filtering the list of codes, and it shows the Memo Deduction, Post-Tax and Pre-Tax options. For more information on these settings, see the next section.
- In the Country drop-down list, select United Kingdom to match codes for UK.
- The United Kingdom subtab is shown at the bottom of the screen and contains the read-only settings for the tax and compliance code. For more information on these settings, see the next section.
United Kingdom Tab for Tax and Compliance
The United Kingdom subtab of the Tax and Compliance tab in the Deductions screen identifies UK-specific deductions to support UK payroll. The same deduction code can be used across the UK, Canada, and US, but its tax details (described in the next point) are different for each country:
- The United Kingdom subtab in the Tax and Compliance tab shows the following settings:
- Tax Type
- Tax Method
- Is Pension
- Student Loan
Each setting is described below:
Tax Type
The Tax Type drop-down list shows the following options:
- Post-Tax: The application withholds the deduction from the payment after it deducts employee tax and NI. The amount of the deduction is included in the total deductible earnings of the payment for employee tax and employee and employer NI.
- For example, an employee has a £75 post-tax deduction on their payment. In the Employee tab of Payroll > Pay Run Management > Preview, the application includes the deduction in the Total Deductible Earnings column for the PAYE, EE NI, and ER NI.
- Pre-Tax: The application reduces the taxable pay by the deduction amount before it calculates employee tax, but the deduction is still subject to employee and employer NI. The amount that the application withholds for this deduction code is excluded from the total deductible earnings of the payment for employee tax. This means that the employee only pays tax on earnings minus the amount of the deduction.
- For example, say that an employee has a £175 pre-tax deduction on their payment. In the Employee tab of Payroll > Pay Run Management > Preview, the application excludes the deduction from the Total Deductible Earnings column for the PAYE taxes, but includes it for the EE NI and ER NI tax.
- Memo Deduction: These deductions do not impact an employee's pay, and they are shown in the Memo Information section of the payslip. For example, you would use this type of deduction to generate the employer contribution to an employee's pension.
Tax Method
Dayforce shows the following options, depending on the option that you select from the Tax Type drop-down list:
- If you select Pre-Tax from the Tax Type drop-down list, the Tax Method drop-down list includes the following options:
- Give As You Earn
- Pre-Tax
- If you select Post Tax from the Tax Type drop-down list, the Tax Method drop-down list shows the following options:
- Advance
- Loan
- Net Pay Deduction
- Save As You Earn
- Season Ticket
- Union
- If you select Memo Deduction from the Tax Type drop-down list, the Tax Method drop-down list only includes the Pre-Tax and NI option.
Is Pension
Select the Is Pension checkbox to identify the deduction code as a pension contribution. You can select this checkbox for pre-tax, post-tax, or memo calc deductions. The Is Pension checkbox is used in Real Time Information (RTI) payroll validations for pension contributions.
Moreover, the application counts deductions that have the Is Pension checkbox selected toward the tax-exempt limit, which is currently £40,000 per year. When a payment to the employee places them over the £40,000 limit for tax-exempt pension contributions, any amount over the limit is subject to employee tax withholding. The application also generates the following warning message when you calculate payroll: "Total pension contributions of <amount of payroll entry being calculated> excess annual allowance of 40000."
Student Loan
Select the Student Loan checkbox to identify if the code as a student loan deduction.