Employing people requires you to manage a PAYE (Pay As You Earn) scheme. If your business is a limited company, the owner is also liable for PAYE.

PAYE documents

The Inland Revenue issues booklets explaining how PAYE works, these can be obtained from your tax office. The main documents you need to operate PAYE are:

  • Form P11 – a deduction working sheet for each employee
  • PAYE Tables (there are two books of tax tables):
    • Table A – Pay Adjustment Tables – shows the amount that an employee can earn in any week or month before the payment of tax
    • Tables B to D and LR – Taxable Pay Tables – show the tax due on an employee's taxable pay
  • Form P45 – given to an employee on leaving
  • Form P46 – used when a new employee does not have a P45 from previous employment (e.g. a school leaver starting work for the first time)
  • Form P60 – used to certify an employee's pay at the end of the tax year
  • Form P35 – the year-end declaration and certificate which summarises all the tax and National Insurance deductions from employees for the tax year
  • Form P6 – the tax codes advice notice issued by the Inspector of Taxes telling you each employee's tax code

Arriving at employee tax deductions

  • Add this week's gross pay to the previous total of gross pay to date, so as to show the total gross pay to date and including this week of the tax year
  • By checking the tax code number of the employee on Table A, arrive at the figure of tax-free pay for that particular week
  • Deduct the amount of tax-free pay from the total pay to date, to get the amount of taxable pay
  • By using Table B work out the tax due on the total taxable pay for the year to date. Then make the appropriate deduction to allow for the tax due
  • Deduct the amount of tax already accounted for in previous weeks, from the total tax due, to work out the tax due for the week