AAT Level 2 - Principles of Bookkeeping Controls - Payroll

What is gross pay?

• The total amount payable to the employee after deductions.

• The total amount payable to the employee before deductions.

• The amount left after income tax is deducted.

• The amount paid into a pension fund.

Answer explanation

Gross pay refers to the total amount an employee earns before any deductions, such as taxes or retirement contributions, are taken out. Therefore, the correct choice is the total amount payable to the employee before deductions.

Which of the following is collected under the Pay As You Earn (PAYE) system?

• Employee’s pension contribution

• Employer’s NIC

• Income tax

• Other deductions

Answer explanation

Under the PAYE system, income tax is deducted directly from employees' wages by their employer. This system does not collect pension contributions, employer's NIC, or other deductions.

Who is responsible for paying the employer's National Insurance Contributions (NIC)?

• The employee

• The employer

• The government

• The pension fund

Answer explanation

The employer is responsible for paying the employer's National Insurance Contributions (NIC). This is a legal obligation for employers in the UK, separate from any contributions made by employees.

Which of the following is NOT deducted from the employee’s gross pay?

• Employee’s NIC

• Employer’s NIC

• Income tax

• Employee’s pension contribution

Answer explanation

Employer’s NIC is not deducted from the employee’s gross pay; it is an expense for the employer. In contrast, Employee’s NIC, income tax, and pension contributions are all deducted from the employee's gross pay.

What happens to the employee’s pension contribution?

• It is paid to the tax authorities.

• It is deducted from gross pay and paid into a pension fund.

• It is added to the employee’s gross pay.

• It is used to pay for other deductions.

Answer explanation

The correct choice is that the employee’s pension contribution is deducted from gross pay and paid into a pension fund. This ensures that the funds are allocated for retirement savings rather than being taxed or used for other purposes.

Which of the following is an additional expense to the company for employing individuals?

• Employee’s NIC

• Income tax

• Employer’s pension contribution

• Other deductions

Answer explanation

The employer's pension contribution is an additional expense for the company, as it is a cost incurred on top of the employee's salary. Other options like NIC and income tax are typically employee liabilities.

What are other deductions?

• Income tax and NIC

• Charitable donations or trade union subscriptions

• Employer’s NIC

• Employer’s pension contribution

Answer explanation

Other deductions can include charitable donations or trade union subscriptions, which are voluntary contributions that can reduce taxable income, unlike mandatory deductions like income tax or NIC.

Who collects the employee’s NIC on behalf of the employee?

• The employee

• The employer

• The pension fund

• The government

Answer explanation

The employer is responsible for collecting the employee's National Insurance Contributions (NIC) on their behalf, ensuring compliance with tax regulations.

What is the role of Her Majesty’s Revenue and Customs (HMRC) in the context of gross pay?

• To pay the employee’s pension contribution

• To collect income tax and NIC from the employer

• To organise charitable donations

• To manage the employee’s gross pay

Answer explanation

Her Majesty’s Revenue and Customs (HMRC) is responsible for collecting income tax and National Insurance Contributions (NIC) from employers, which directly affects the gross pay of employees.

Which of the following is true about the employer’s pension contribution?

• It is deducted from the employee’s gross pay.

• It is an additional expense to the company.

• It is paid to the tax authorities.

• It is used to pay for other deductions.

Answer explanation

The employer's pension contribution is an additional expense to the company, as it represents a cost incurred by the employer to fund employee retirement benefits, rather than being deducted from employee pay or paid to tax authorities.