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 have issued guidelines of employment status in the form of questions which cover the following principal factors:

1. The degree of control and supervision exercised over the individual’s work
2. Whether services are performed mainly or wholly for one business
3. Where the duties are performed
4. Terms of pay, holiday time, pension arrangements, and other benefits
5. Whether the work has to be performed personally, or whether a substitute may be supplied
6. Provision of items of equipment
7. The financial risk and responsibility for loss undertaken by the individual

Setting Up a PAYE Scheme

Should you require a PAYE scheme then please do not hesitate to contact us and we can set this up for you online. If you wish you can notify HM Revenue & Customs by telephoning the New Employers Helpline (0845 607 0143).

Upon registration, HM Revenue & Customs will send you a new employer starter pack which gives you guidelines on operating PAYE. You will also be given a number of forms and tables which you will require in order to calculate the amount of tax and NI due.

By referring to these sets of tax tables, and an employee’s tax code, you will be able to calculate the amount of salary that is not subject to tax. The difference between this figure and the gross amount paid is the employee’s taxable pay. The tax can then be calculated by reference to another set of tables. The employer’s and employee’s NI is calculated by reference to the employee’s gross pay in conjunction with a third set of tables. Note, however, several ‘benefits’ are also subject to NI even where the tax is dealt with on a different basis.

The tax and NIC calculated should be paid to HM Revenue & Customs by the 19th of each month if paying by cheque, or the 22nd if paying electronically. 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.

Electronic Payment of PAYE and Filing of PAYE Returns

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.

Employers can also file P35, P38A and P14 forms over the internet. Employers are, on a phased basis, required to file their end of year return electronically. The implementation date will depend on the number of staff involved, but all employers will have to send their returns electronically from May 2010.

Employers with fewer than 50 employees can get tax free ‘incentive’ payments by filing their P35 online as follows

Tax Year 2008/09 - P35 due by 19th May 2009 - Tax free incentive of £75.00.

We are aware that PAYE can be an involved and time consuming procedure for the new businessperson. We would be pleased to show you how to operate it properly or provide a payroll service for the maintenance of your PAYE records. Therefore please do not hesitate to contact us.