The Personal Income Tax (PIT), which consists of Pay-As-You-Earn (PAYE) for wage earners and direct assessment for self-employed businesses, has drawn numerous inquiries from taxpayers around the country, as is the case with many other tax types.
One of these many questions is how to calculate Pay-As-You-Earn taxes for employees in different states. You will find answers to this question and more in this article.
This article explains what Pay-As-You-Earn (PAYE) Tax is, what address PAYE deductions from a staff member’s salary should be sent to, and how to calculate Pay-As-You-Earn (PAYE) taxes for employees in Kano.
What is Pay-As-You-Earn?
Pay-As-You-Earn is a type of tax that employers withhold from workers’ salaries and earnings. The Pay-As-You-Earn (PAYE) system is used in Nigeria to determine employees’ income taxes, often known as PAYE tax. This tax percentage increases from 7% to 24% of taxable income. A year’s worth of taxable income is between NGN300,000 and NGN3.2 million.
Individuals employed by business entities must pay Pay-As-You-Earn. By law, employers must withhold from employees’ salaries a specific amount, the calculation of which is supplied by the tax authority. The deduction must be sent to the appropriate tax office by way of specified banks on or by day 10 of the next month, for example, employers must submit January’s PAYE by February 10th at the latest.
What address should Pay-As-You-Earn deductions from a staff member’s salary who works in Kano be sent to?
According to the residency rule, an employee’s Pay-As-You-Earn is due to the state’s tax authority where he or she resides. Therefore, it is the employer’s responsibility to withhold the money and send it to the appropriate taxing body where the employee resides.
The Kano State Board of Internal Revenue is the tax authority that is entitled to the employee’s PAYE if he resides in Kano.
The Kano State Revenue Administration Law, 2013, established a Board known as the Kano State Board of Internal Revenue whose operational arm is known as the Kano State Internal Revenue Service. The Personal Income Tax Act Cap.71 1972 Laws as revised in 1976 established the Board of Internal Revenue, which this law essentially abolished (as was applicable to Kano State).
How to calculate Pay-As-You-Earn (PAYE) taxes for employees in Kano
The computation rates are the same in every state in Nigeria. The following are the current rates that apply to the chargeable income:
1st N300,000 @ 7%
Next N300,000 @ 11%
Next N500,000 @ 15%
Next N500,000 @ 19%
Next N1,600,000 @ 21%
N3,200,000 and above at 24%
The minimum tax rate is 1% of gross income. It is applicable if the taxable income is below N300, 000.
Using the pay-as-you-earn tax calculator
The PAYE tax calculator provided by HMRC may be used to verify your payroll calculations after you have all the necessary data. You will need your employee’s tax code, the pay period, gross pay, and tax totals in order to receive an exact result.
The basic PAYE tools provided by HMRC can also be used to assist with payroll management. The resources may be used in conjunction with payroll software to assist companies with:
- Look up the National Insurance numbers
- Employer Payment Summaries should be sent (periodic updates to let HMRC know about PAYE changes such as if no employees were paid in a tax month)
- Compute taxes
- Give updates from prior years (if you need to let HMRC know about a correction to a payment made in a previous tax year)
- Calculation of National Insurance and taxes
- Transmit important data to HMRC.
The calculator can only be used and is only appropriate for companies with less than 10 employees, according to HMRC.