An introduction to PAYE

Whether an individual is an employee or self-employed in a particular situation is a question of fact depending on the terms under which he or she works. When you engage someone to do work for you, you have to decide whether or not to apply the PAYE rules. It is up to you to get it right or suffer the consequences.

In certain areas, HMRC has placed emphasis on reclassifying individuals claiming to be self employed. HMRC guidance can be found online. This covers the following principal factors:

  • The degree of control and supervision exercised over the individual's work
  • Whether services are performed mainly or wholly for one business
  • Where the duties are performed
  • Terms of pay, holiday time, pension arrangements, and other benefits
  • Whether the work has to be performed personally, or whether a substitute may be supplied
  • Provision of items of equipment
  • The financial risk and responsibility for loss undertaken by the individual

Please note: We strongly recommend that if you are in any doubt as to the status of an individual, ask HMRC to clarify the situation. Obtaining their approval will avoid the risk of you having to make a settlement of liabilities to tax or NI that you failed to deduct from the employee's remuneration.

Before establishing a PAYE system, it is necessary to notify the HMRC by telephoning the New Employer Helpline (0300 200 3211).

Upon registration, HMRC will send you information about where to access help on GOV.UK on operating PAYE under the RTI system, national insurance, statutory sick pay, statutory maternity pay, statutory paternity pay and statutory adoption pay.

In practice almost all payrolls are now calculated digitally. Most returns to HMRC must also be filed electronically. 

The tax and NI should be paid to HMRC by 22nd of the month following payment if paid electronically, and 19th of the month otherwise. Employers whose average monthly payments of PAYE and NI are less than £1,500 in total are allowed to pay quarterly rather than monthly (i.e. by 19th of July, October, January and April). This should be requested using form P31

PAYE can be a tortuous procedure for the new businessperson. We would be pleased to show you how to operate it properly or provide a service for the maintenance of your PAYE records.

Electronic payment of PAYE

Employers who pay electronically have until the 22nd of the month to pay. Where the 22nd falls on a weekend or is a bank holiday, payment must be received by the previous bank working day.

Check your net pay using our Payslip calculator

Incorrect PAYE code?

Taxpayers can now use a structured email service to let HMRC know if a coding notice is wrong. The online form called a PAYE Coding Notice query allows the taxpayer to provide details of salary, company, personal pension, state pension/benefits, company benefits and other income.

HMRC will then send an email to acknowledge that it has received the information and will aim to deal with the query within 15 working days.

Alternatively a taxpayer can call the HMRC online services helpdesk on 0300 200 3310.

To conclude: 7 things to do when taking on an employee:

  1. The rate of pay. This needs to comply with NMW and living wage rules
  2. The employee’s legal right to work in the UK
  3. Carry out a Disclosure of Barring (DBS) check (formerly known as a CRB check) for certain jobs or voluntary work with children, in healthcare or security
  4. Employers’ liability insurance
  5. Send the employee a written statement of terms and conditions of employment within 2 weeks of starting, or if they are going to work abroad, before they go.
  6. Register with HMRC as an employer and obtain a PAYE scheme reference number. This can be done up to four weeks before the first payday
  7. Check whether the staff need to be auto-enrolled into a workplace pensions scheme

Contact us if you would like further help or advice on this subject.