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.

SJD Accountancy

SJD Accountancy are the UK's largest specialist provider of fixed fee, Limited company accountancy services to contractors; we've been acting for contractors across the UK since 1992 and have more than 15,000 clients.

We are the only national specialist firm of contractor accountants with offices nationwide. SJD Accountancy has more qualified staff than any other firm in our market with qualifications from the following major tax and accountancy bodies - ATT, AAT, CTA, ACCA, CA, ACA and FCCA.

  • Unlimited face to face meetings. This is a unique service only SJD Accountancy offers - unlimited face to face meetings across the UK - tax is complicated and sometimes only a meeting will do.
  • UK's Largest contractor accountants with more qualified staff. No call centres, no outsourcing, no automated call handling. Simply telephone, email or meet your own dedicated accountant* face to face.
  • Money back service guarantee. All your telephone calls and emails will be answered the same day or we will make a full refund of that months fee.
  • Outstanding reputation. We have won more awards for customer service and accountancy excellence than any other firm in our market, including: Best Accountant for Contractors, Accountant of the Year and Best Professional Service Team to name just a few.
  • All inclusive low cost fixed fee accountancy package which includes completion of accounts*, payroll bureau, dividends and corporation tax computations, personal taxation, free bookkeeping software, your own dedicated accountant* and all company returns for a fixed fee of £120 plus VAT per month.

If you have any questions about contracting or would like any further advice please call our new client services helpdesk on 01442 275789 or email: janice@sjdaccountancy.com. Our new client services helpdesk is open Monday to Friday (8am to 6pm).

Appoint SJD Accountancy and never worry about your tax or accountancy affairs again.

Form your own Limited company with SJD - our same day online company formation service includes company bank account set up, VAT/PAYE registration and advice on optimum share structure. 

You may also find the following pages, guides and case studies useful:

*If you would like us to complete your company year end accounts we simply ask that you have been a client of SJD for one year or have made 12 monthly payments. All accountants are part or fully qualified.