An Introduction to PAYE
Any person employing an individual under a contract for services must consider the application of PAYE.
All employers must register with HMRC if any employees are paid over the lower earnings limit or it is the employee’s second job.
All employees, regardless of age or the amount paid, are subject to the PAYE regulations. There is no such thing as a casual worker outside of the PAYE net.
The employer must obtain full details of the employee, including their full name, national insurance number, date of birth, address and proof of eligibility to work in the UK.
The employer must ensure that the employee is paid an amount equivalent to at least the National Minimum Wage as prescribed by the Government from time to time.
The employer is responsible for ensuring that the correct deductions are made for PAYE and NIC. Employers must pay over the correct amount to HMRC on a monthly/quarterly/annual basis (dependent on the circumstances).
The PAYE calculations can be complex due to the number of factors involved, e.g. changing tax codes, SSP, SMP, student grants, NIC classification and pension deductions. Therefore, although it can be calculated manually, more often than not, some form of computer software will be used.
The employer is required to give each employee a payslip, a P45 when the employee leaves employment with earnings and tax paid to date and a form P60 at the end of each tax year showing earnings and tax deducted if the individual is still in that employment at the tax year end.
From 6th April 2013 all employers are required to make the necessary submissions online using the RTI system on or before the date the employee is paid.
Failure to comply with the PAYE and RTI regulations can lead to substantial penalties and it is therefore essential that employers ensure that their affairs are being dealt with correctly.