PAYE and National Insurance

If you are a company that is employing staff you will need to know about National Insurance Contributions and PAYE – Pay As You Earn tax. It’s the government’s slice of yours and your employees’ earnings.

Who Has to Pay?

Everyone working for you on a contract basis – whether it’s temporary, permanent, full time or part time – counts as an employee and therefore should be paying National Insurance Contributions (NICs) and some form of tax. Directors who are also owner of the company are equally liable as they are technically employed by the company so bear that in mind too! What each employee pays will vary depending on their circumstances of course.

What About Self-Employed Staff?

There may be individuals who work for you in some capacity who are self-employed and therefore will take responsibility for their own tax affairs. This is fine but as an employer you need to be seen to have established this responsibly. There is a leaflet IR56 which you can get from HM Revenue & Customs website which gives further information and guidance on this – you do have to make sure you have checked this out.

What Do You Need From Your Employees?

When you start to employ staff you will need a P45 from them and their National Insurance Number. These two things will enable you, as their new employer to track what tax has been paid to date in any given tax year, and to adjust, if necessary, what the payments will continue to be.

Can You Do This Yourself?

Unless you’re a dab hand with figures or have had accounting experience or training, it may be unlikely that you will handle payroll issues at the business. But if you are planning to take this on, there is plenty of help you can look for from the Business Link website or local advisor. Also the HMRC (Her Majesty’s Revenue & Customs) website has plenty of advice and guidance leaflets. It's more likely your accountant will handle payroll issues for you though.

HMRC can also supply you with what is known as a New Employer Starter Pack, which will guide you through recording a new employee’s details correctly, help you to calculate their tax and NICs, and show you how to keep a record of all payments and deductions.

Some employees may come to you without a P45, or even possibly not know their NI number and the Starter Pack will show you how to deal with this too.

Pay Slips

Once you have made the deductions necessary each month you will need to provide your employee with a statement, or pay slip, which must show their gross pay (before tax), any deductions and the net amount after the deductions have been made. This should be given to them at the time of payment, or just after is OK. If you don't give your employees an itemised payslip with this information they could have recourse to complain at an employment tribunal.

If you are in any doubt about any of this you should consult your accountant, or talk to your Business Link advisor. There is a fair bit of paperwork involved and penalties for doing it wrong or sending it in late.