RTI – Operating PAYE as an employer

Note for employers

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.

From 6 April 2014, many employers are eligible for the ‘Employment Allowance’. This is a Government incentive which can reduce the amount of National Insurance an employer pays by up to £2,000 pa. For details see https://www.gov.uk/employment-allowance .

Under Real Time Information (RTI), employers making returns to HMRC each time they run the payroll. See  https://www.gov.uk/business-tax/paye.

RTI replaces the need for employers to make end of year returns.  The employer must still give the employee a statement of gross pay and tax deducted for the year (form P60) and a statement of taxable benefits (P11D). RTI also changes the way employers report leavers and joiners. P45 forms should still be given to the employee although copies of these forms are no longer be sent to HMRC.

Employers must keep records of wages and deductions, and provide employees with wage slips and tax forms. HMRC can inspect the wages records.