Operating PAYE as an employer

PAYE (Pay As You Earn) is a tax collection system. It ensures that the Government gets tax revenue from employed workers as soon as they start earning. You, as the employer, are responsible for running it. You may choose to pay someone else, such as an accountant or payroll bureau, to do this work for you.

Under PAYE, you are responsible for deducting income tax and National Insurance Contributions from your employees’ wages and paying this to HMRC every month. You also have to pay additional National Insurance Contributions as an employer. These contributions are called Employer’s Class 1 National Insurance Contributions. For information about income tax and NIC, see the sections on income tax and National insurance.

You are also responsible for sending in returns to HMRC showing the income tax and National Insurance due and paid. After the end of each tax year you must send HMRC an Employer Annual Return (form P35 and forms P14). These forms show what you have paid each employee and what income tax and National Insurance Contributions are due. Almost all employers will send in these forms online (for exceptions see http://www.hmrc.gov.uk/paye/payroll/year-end/paper-filing.htm). You must also give the employee a statement of gross pay and tax deducted for the year (form P60) and a statement of taxable benefits (P11D).

You must keep records of wages and deductions. You have to provide employees with wage slips and tax forms. HMRC can inspect your wages records.

There is more information about being an employer on the HMRC website at http://www.hmrc.gov.uk/employers/index.shtml, and a guide to the basics of PAYE at http://www.hmrc.gov.uk/paye/intro/basics.htm