Irrespective of the form of business in which you operate, if you are going to have employees, then you will have to contend with payroll taxes. The brief summary that follows will give you some guidance in the rules and regulations of H M Revenue & Customs.
H M Revenue & Customs publish various booklets relating to how PAYE is operated and the legislation that you have to comply with. Not only do you collect and remit PAYE to the Collector of Taxes on behalf of H M Revenue & Customs, you also operate the sick pay scheme and maternity pay scheme. You should run the PAYE scheme in accordance with the legislation and should you fail to comply then H M Revenue & Customs will look to you for the tax or NIC you failed to deduct. This can be costly if you are unable to recover the tax and NIC from the employee.
Do you have employees?
Whether an individual is an employee or not in a particular situation is a question of fact depending on the terms on which he works. The question of whether an individual is employed or self-employed is very important for the business “employing” him or her, as that business has to comply with the reporting requirements.
In certain areas H M Revenue & Customs has placed emphasis on reclassifying individuals claiming to be self employed and has issued leaflet IR56 entitled “Tax: employed or self employed”. This booklet sets out the questions that should be answered to determine the problem. If you have treated someone as self employed and subsequently after a routine visit from H M Revenue & Customs it is clear that they were employees, then the tax and NIC which should have been paid will be assessed on you. Therefore it is important to ensure when using the services of self employed people, that they are in fact self-employed. If doubt exists as to the status of an individual, the situation can be clarified with H M Revenue & Customs.
The Operation of a PAYE Scheme
Upon registration H M Revenue & Customs will send to you guidelines on operating PAYE, National Insurance, Statutory Sick Pay and Statutory Maternity Pay (employer’s pack). Included will be a number of forms with which to operate the PAYE and NIC system. You should familiarise yourself with and have supplies of these forms, which are as follows:-
|P11||Deduction working sheet|
|P46||Notification to the Inland Revenue where no code has been notified to the employer and application for coding|
|P46(Car)||Notification of a car provided for the private use of an employee or a director|
|P45||Details of employee leaving|
|P14/P60||End of year return and employers certificate|
|P35||Employer’s annual statement|
|P38A||Employer’s supplementary return|
|P11D||Expenses and benefits|
|P9D||Expenses payments and income from which tax cannot be deducted.|
In order to calculate the amount of tax and national insurance due by an employee, H M Revenue & Customs will supply you with sets of tables. By reference to the “tax free” tables and an employee’s tax code you will be able to calculate the amount of salary that is not subject to tax. The difference between this figure and the gross amount is the employee’s taxable pay. This can then be calculated by reference to another set of tables. The employer’s and employee’s national insurance is calculated by reference to the gross pay with a third set of tables. Special rules exist for the calculation of national insurance for directors.
The tax and national insurance should be paid to H M Revenue & Customs by the 19th of the month following that in which the salaries were paid.
In most businesses, the directors, and often the employees, have benefits that are not immediately taxed through the PAYE system, the most usual being the provision of a car and possibly fuel. Class 1A national insurance contributions are due on the taxable value of these benefits in kind and are due on the 19 July following the fiscal year in which the benefits are made available. In addition, H M Revenue & Customs requires on an annual basis, a form P11D (Return of expenses payments and benefits) for all directors irrespective of income and all employees receiving remuneration including the benefit in excess of £8,500. For those employees earning less than £8,500 but who receive expense payments and benefits, a form P9D is required.
A form P46(Car) needs to be completed quarterly on 5 July, 5 October, 5 January and 5 April if any employees have been provided with or have changed their company car. Further details are given on the taxation of company cars in Inland Revenue leaflets IR132 and IR133. H M Revenue & Customs will still require form P11D to be submitted annually in addition to the P46 (car) forms.