Once you take on an employee, you are responsible for calculating and deducting PAYE tax and National Insurance Contributions (NIC’s) from an employees pay.

NIC’s are essentially a tax on earned income. The NIC regime divides income into different classes: Class 1 contributions are payable on earnings from employment, while the profits of the self-employed are liable to Class 2 and 4 contributions. National Insurance is often overlooked yet it is the largest source of government revenue after income tax.

An employee is anyone you employ and includes full-time, part-time and casual workers. If someone working for you says that they are self-employed you must check that this is actually the case. It is not a matter of choice; it is your responsibility to ensure that you have the correct employment status for everyone working for you.

Directors of limited companies are also employees of the company so you must deduct tax and NIC’s from their pay.

HMRC impose penalties on employers who fail to: keep the necessary records, operate PAYE or NI correctly, make the correct statutory payments, or provide HMRC or the employees with the relevant forms on time. It is important that you comply with all the regulations.

How we can help

The operation of PAYE can be a difficult and time consuming procedure for those in business. We will be happy to show you how to operate PAYE properly, offer ongoing advice on particular issues, or to provide an outsourced payroll service.