PAYE & National Insurance

Whether an individual is an employee or self-employed in a particular situation depends upon the terms under which the individual works. When someone is engaged to do work, a decision has to be made whether or not to apply the PAYE rules.

It is important to make the correct decision or you could suffer the potentail financial consequences. For 25 years DEB have provided a Payroll Service to give advice and support to alleviate the burden of this potentially complex process.

HM Revenue & Customs has placed emphasis on correctly classifying individuals who claim to be self -employed. A leaflet, ES/FSI, ”Employed or Self-employed?” sets out the guidelines of employment status in the form of questions covering the following principal factors:

  • The degree of control and supervision exercised over the individual’s work
  • Whether services are performed mainly or wholly for one business
  • Where the work takes place
  • If the work is performed personally, or whether a substitute may be supplied
  • Who provides items of equipment
  • The financial risk undertaken by the individual

At DEB we strongly recommend that if you are in any doubt as to the status of an individual, ask HM Revenue & Customs to clarify the situation. Obtaining their approval will avoid the risk of you having to make a settlement of liabilities to tax or NI that you failed to deduct from the employee’s remuneration.

Before establishing a PAYE system, it is necessary to notify the HM Revenue & Customs by telephoning the New Employers Helpline (0845 607 0143).

HM Revenue & Customs will send you guidelines on operating PAYE, national insurance, statutory sick pay, statutory maternity pay, statutory paternity pay and statutory adoption pay, including a number of forms with which to operate the PAYE and NI systems. DEB Payroll Services provides a cost-effective means of alleviating the burden of this complex process.

To calculate the amount of tax and NI due, HM Revenue & Customs will supply you with sets of tax tables. By referring to these, and an employee’s tax code, you will be able to calculate the amount of salary that is not subject to tax. The difference between this figure and the gross amount paid is the employee’s taxable pay.

The tax can then be calculated by reference to another set of tables. The employer’s and employee’s NI is calculated by reference to the employee’s gross pay in conjunction with a third set of tables. Note, however, several ‘benefits’ are also subject to NI even where the tax is dealt with on a different basis.

The tax and NI should be paid to HM Revenue & Customs by 19th of the month following payment. Employers whose average monthly payments of PAYE and NI are less than £1,500 in total are allowed to pay quarterly rather than monthly.

PAYE can be a tortuous procedure for the new businessperson and its ever changing nature creates a time-crucial burden for established business. We would be pleased to show you how to operate it properly or provide the DEB Payroll Service for the maintenance of your PAYE records.