As an employer, you have to work out and pay the Pay As You Earn (PAYE) and National Insurance Contributions (NICs) for your staff. There is no getting away from this. HM Revenue & Customs (HMRC) regulations have the force of law behind them and misunderstanding or neglect are no excuse.
Firstly, you have to decide who is an employee. HMRC defines employees as:
- casual and part-time workers
- anyone who is an office holder, including directors
If you use contractors or self-employed and are not intending to pay their taxes then make sure that they are registered as self-employed first. IR35 regulations came into force ten years ago to help distinguish between contractors and staff. If your 'contractor' is keeping regular hours and works exclusively for you, then you might be liable to pay their income tax and NICs. Check with your accountant and/or solicitor if you are unsure.
Having decided who is an employee, during the tax year you must do the following:
- deduct the correct amount of PAYE from your employees' pay
- work out how much NICs you and your employees have to pay
- keep a record of your employees' pay, and what PAYE and NICs are due
- make monthly, or quarterly payments of the total PAYE and NICs due to the HMRC
At the end of the year, you must send a tax return to HMRC showing details of each employees total PAYE and NICs due. You must also send details of certain expenses you have paid to employees, or benefits you have provided them with, for example, company cars.
You must give every employee who has paid PAYE or NICs and is still working for you at the end of the tax year, a certificate showing their pay, PAYE and NIC's details. This is known as the P60 form and employees should keep these for their own records.
Consider using an off-the-shelf computer package, or use a bureau service, to help you complete these obligations. You can even use a payroll service which will then obtain all the necessary forms. But remember – whoever and whatever system you use – the obligation for filing the returns is up to you as an employer.