IRD arrears deductions (standard percentage based)

ANSWER ID:31252

If you have received a letter from the IRD and have to take a deduction as a percentage from an employee's pay for Inland Revenue arrears, this page will show you how to set this up in Payroll.

Only us this process when you have received a letter from Inland Revenue instructing you to make a percentage based deduction. Alternatively, Inland Revenue may require you to make deduct a fixed amount, which is a separate process.

Start by setting up the IRD Arrears Deductions and Pay Default in Payroll, and then create the pay and pay the deductions.

1. Setting up the IRD arrears deductions and Pay Default

Setting up IRD arrears deductions

Go to the Maintenance command centre and click Maintain Employees.
Click Select Employee.
Click the applicable employee then click OK.
Click the Compulsory Deductions tab.
In the Inland Revenue Arrears section, enter the Original Sum in Default, which you received in the letter from Inland Revenue. The Balance Owing field will automatically populate with this same amount.

Setting up IRD arrears Pay Default

This is setup automatically for you and there is no action required. Tthe "IRD" (Inland Revenue Arrears) pay code is automatically added to the Employee's Pay Defaults.

When the next pay is processed either 10% of the total owing or 20% of the employee's gross earnings for that pay will be calculated as payable in IRD Arrears.

2. Creating the pay and paying the IRD deduction

Go to the Maintenance command centre and click Maintain Pay Codes.
Click the IRD (Inland Revenue Arrears) pay code.
Click the Other tab.
Select the option Include in Direct Credit Schedule. The required bank account number is already hard-coded into Payroll.
Go to the Prepare Pays command centre and click Enter Pays.
Process the employee's pay as you normally would. The IRD Arrears deduction will not appear until the employee's earnings are entered.

Once the pay is finalised the amount deducted for IRD Arrears will be deducted from the "Balance Owing" for the employee in question. The total deductions made will appear on the "Direct Credit Schedule" ready to pay to Inland Revenue.

Once a pay has been processed and the deduction made, it's still possible to manually adjust the Original Sum in Default. Only make an adjustment to these fields if you are instructed to by Inland Revenue.

If you adjust this it will also change the Balance Owing. By making this adjustment, you will not be able to re-set the correct balances of both the Original Sum in Default and the Balance Owing.

How will the IRD know which employee the money is coming from, since I'm unable to enter the Particulars, Code, and Reference for the transaction?

The IRD knows which employee the money is coming from by getting this information from the employees' IRD number, tax type, and tax period. This is all the information they require.