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Employer Tax Guidance

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Basic Employer Guides for Paying Employees

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Employers have a number of legal obligations to consider when paying employees. You must understand your obligations relating to pay and deductions through the PAYE (Pay As You Earn) system.

UK Employers have to register with HM Revenue and Customs (HMRC) when they pay employees an amount over a minimum threshhold. The thresholds are determined each tax year 6 April to 5 April by HMRC and published.

Registering as an Employer

For most new employers, the first step is to visit the HMRC website and register as an employee. Planning is required as this step can be time consuming and if not approached properly, frustrating. For example, first time registration as an employer will require you to enrol for HMRC on-line services.

In order to do this you must provide information about your business, set up an online account with user names and passwords and apply for a Government Gateway ID. This Id is then used to access many tax related business services. An activation password will be sent, by post, to your correspondence address and the Gateway service cannot be used until this password has been used to activate the service. This may take up to ten working days.

Thereafter you can register to operate a PAYE system with HMRC. Again, you will be required to provide details of your business and must wait for an activation code to be sent, by post, before you can use the service. In addition, you will require a unique empoyers' tax reference and tax office reference. This too will be sent, by post. What should be apparent is that you must allow time for this process to progress and the earlier you anticipate the need to operate the system the better prepared you will be.

National Mimimum Wage

As an employer you're legally obliged to pay your workers at least the national minimum wage (NMW). The NMW applies to most workers above the school leaving age. The amount that you must pay depends on the age of the worker. For more details, please see National Minimum Wage.

Payslips and Annual Summaries

By law, every pay day you must give your employee a written record of pay and deductions, including:

  • gross pay - before the deduction of tax or National Insurance contributions (NICs) and any other deductions
  • employee's Class 1 NICs deducted
  • tax deducted

This written record is often in the form of a payslip and must be supplied to the employee before, or at the time they are paid. Depending on the employee's circumstances you may also need to include other payments and deductions on their payslip.

At the end of each tax year you must also give each employee who was working for you on the last day of the tax year, a form "P60 End of year certificate" providing a summary of the employee's total pay and tax/NICs deductions for year. You must give this to your employee by 31 May after the end of the tax year.

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