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, HM Revenue & Customs has placed emphasis on reclassifying individuals claiming to be self employed. They issued a leaflet, ES/FSI, Employed or Self-employed? setting out the guidelines of employment status in the form of questions. These cover 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 HM Revenue & Customs 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 HM Revenue & Customs by telephoning the New Employers Helpline (0845 607 0143).
Upon registration, HM Revenue & Customs will send you guidelines on operating PAYE, national insurance, statutory sick pay, statutory maternity pay, statutory paternity pay and statutory adoption pay, including a number of forms with which to operate the PAYE and NI systems. (See checklist below).
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 HM Revenue & Customs by 22nd of the month following payment. 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. See also electronic payment of PAYE.
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
Electronic filing of PAYE returns
Most employers are now required to file P35, P38A and P14 forms using the internet. The current tax year is the last when these forms will require completion as Real Time Information provides this information to HM Revenue & Customs.
Check your net pay using our Payslip calculator
Do contact us if you would like further help or advice on this subject.