Introduction to PAYE

Deciding whether to extend PAYE rules in your business is an important consideration. Making an incorrect distinction can cause significant consequences. A distinction needs to be made on whether an individual is self employed or an employee. Hiring someone to work for you means that this distinction needs to be made.

The HM Revenue and Customs (HMRC) have made clear its policy on reclassifying individuals claiming them to be self employed. For instance, HMRC has issued a leaflet entitled IR56, Employed or Self -Employed? In this leaflet, there are specific guidelines set out to help an employer determine the status of an individual. Some of the factors covered in this leaflet include:

The extent of control that an employer exercises over the work of an individual
Determining whether services are provided wholly or mainly for one business
In what location are job duties performed
Compensation, pension and other considerations for the individual
Whether the individual is personally responsible to complete the work or other individuals may be substituted
Stipulations on how items and equipment are used
The extend of financial risk and responsibility the individual in questions undertakes in relation to the company

It should be noted that if you are unsure or have questions regarding the classification of an individual, you should contact HMRC to clarify. You can avoid the risk of making settlements on tax liabilities or failing to deduct taxes for an employee, just by obtaining HMRC’s approval.
Establishing a PAYE System

If you would like to establish a PAYE system, it is first necessary to notify HMRC. You can contact them directly by telephoning the New Employers Helpline (0845 607 0143). Once you have registered with HMRC, you should receive a packet of information including guidelines on the following topics; operating PAYE, national insurance, statutory sick pay, forms with which to operate your PAYE and NI systems, etc.

In addition to the above forms and information, you will also receive specific tax and NI tables to help you calculate the proper amount. Using these tables, you can easily calculate the amount of salary that is not subject to tax along with other amounts to make sure HMRC receives the proper amounts each month.

The tax and NI is requested by the 19th of the month, while monthly payments to HMRC are standard for large businesses, employers with smaller payments of PAYE and NI are usually allowed to pay quarterly, as long as their average monthly payment is below £1,500 per month. If your payments are below this amount, you can easily request a quarterly payment via form P31.
For those that are in the process of hiring an individual and would like more information or a comprehensive checklist please visit the following site:
http://www.macintyrehudson.co.uk/content/forums_paye/paye_intro.html

The PAYE checklist includes the following points:

* Familiarity with specific forms
* Familiarity with specific guides and help books
* Information regarding various issues such as pay and time off work for parents, sick leave, etc.
* Pensions
* Conducting day to day payroll
* Working tax credits, end of year statements, etc

Streamline PAYE with the Use of Electronic Payments

You can easily manage and streamline your PAYE payments by using electronic payments. Employers that do so have until the 22nd of each month for payments to be received.
Streamline Filing of PAYE Returns

It is important to note that employers can manage and streamline their filing and PAYE returns by doing so electronically. Employers now have the option to file forms P35, P38A and P14 over the internet. It should also be noted that employers with less than 50 employers can receive substantial tax free incentive payments by filing their annual return online as well.

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Source: http://www.macintyrehudson.co.uk/content/forums_paye/paye_intro.html