PAYE & Payroll Guide

Definitions

PAYE is the system by which income tax is deducted by employers from employee wages and paid directly to the government

Following registration, your IR office will notify you of your PAYE reference number

To work out how much tax to deduct from your employee's pay you will need to use a tax code. Usually you get a tax code from the employee's P45 (A Certificate providing details from previous employment) for details on what to do if your employee does not have a P45 contact the IR or log on to www.inlandrevenue.gov.uk

Details on how to deduct NI contributions and PAYE income tax correctly can be found in the IR booklet "Paying someone for the first time" included in the New Employer's Starter Pack or more detailed guidance see their "Employer's Further Guide to PAYE and NICs"

To obtain these guides and many other forms and manuals you will need to navigate your way through the payroll and taxation issue; contact the IR's Employer's Order-line on 0845 7646 646

National Insurance
Your Local tax office will assign you with a Company number for your NI contributions.

NICs consist of two elements

• Employee's contribution (primary contribution), which you are liable to pay in the first instance but which can be deducted from their pay
• Employer's contribution (secondary contribution), which you are liable to pay

Employee's Contributions

You are liable to pay employee's primary contributions if the employee

• Is aged 16 or over, and under State Pension age (65 for men, 60 for women)
• Earns more than the Employee's Earnings Threshold, (EE/ET)

Employee's contributions are payable only on those earnings which are above the Employees Earnings Threshold, up to and including the Upper Earnings Limit, (UEL)

For exceptions to this rule, and how to treat employees, who are over the state pension age, contact the IR.

Employer's Contribution

You are liable to pay employer's contributions on all your employee's earnings above the Employer's Earnings Threshold ER/ET, if

• The employee is aged 16 or over
• Earns more than the Employer's Earnings Threshold (ER/ET)

There is no Upper Earnings Limit for paying employer's contributions and they are payable even if the employee is over State Pension age or otherwise excepted from paying their primary NICs.

To calculate these amounts you will need a P11 form and can gain an information booklet from the IR, which contains NIC tables to work out how much NI contributions you and your employee have to pay. Contact the Employer's Order-line.

You must pay NICs and Tax to the Inland Revenue Accounts Office, within 14 days of the end of each Income Tax month. You can, however, opt to pay quarterly if the total is less than £1500.

Working Families Tax Credit and Disabled Person's Tax Credit are new schemes administered by the IR.

• WFTC tops up the earnings of working families with children
• DPTC gives support to people who have a disability
• Both can include a childcare tax credit to help with the childcare costs of a working parent

Statutory Sick Pay is the minimum level of sick pay you must pay to most employees who are off work sick for 4 or more calendar days in a row.

Statutory Maternity Pay - As an employer, you must pay a minimum level of maternity pay to most employees who are off work to have a baby.