Already an employer? Thinking of employing? Or, if you have an agent that has taken this responsibility off of your ever growing to do list will be responsible for operating a PAYE scheme.
A PAYE scheme is the HM Revenue and Customs’ process to collect income tax and National Insurance from employment. Those employers - or the represented agent are required to make regular online submissions for each of the pay periods during the payroll year. This will either be weekly or monthly and is normally required within a payroll month (from the 6th to the 5th of the following month). These online submissions detail payments and deductions made from employees either on or before the date they are paid, known as Real Time Information (RTI) submissions.
Real Time payroll (RTI)
RTI checks and maintains the essential data required by HM Revenue and Customs such as Name, Date of Birth, National Insurance Number and if the employee has a right to work in the UK and Current Tax Code.
RTI Reporting will also inform HM Revenue and Customs electronically each time you pay any member of staff depending on the pay structure you have in place. You are expected to report the required information either on or before your employees pay date. The following information will be reported each submission;
- Total Pay and Tax
- If an employee has stated employment and their start date.
- Employees leaving date
- Change of Tax Code
If an employee takes any unpaid leave during their employment and you fail to inform HM Revenue and Customs, they will see this as the employee has ceased employment with you.
National Minimum and National Living Wage
The government introduced the National Living Wage on 1st April 2016. So if you employee workers aged 25 or over it is now illegal to pay them anything under £7.50. If you have any works under 25 the rates are as follows:
- £6.95 – Adult Rate – Workers aged 21 to 24
- £5.55 – Youth Development Rate – Workers aged 18-20
- £4.00 – Young Workers – Aged 16-17
- £3.40 - For Apprentices
The government introduces any updates for the National Minimum Wage on the 1st October each year and for the National Living Wage if the government decided to make any increased this will be around 1st April of each year.
What you need to give your employees
It is your legal duty to ensure that employees are given a payslip each week or month depending on your pay date. The right to a payslip or itemised statement is specified under section 8 of the Employment Rights Act (1996) Failure to withhold employee’s information could result in an employee making a complaint against you to an employment tribunal.
Each payslip must show;
- Employees earning before and after any deductions
- The amount of any deductions eg tax and national insurance
- Total take home pay
- Pay date
At the end of each tax year, you will be required to give your employees a P60 (End of Year Certificate) this is a statement issued to employees at the end of the tax year. These have to be distributed to the employees by the 31st May of each year.
It is important that the employee does not destroy the P60 once issued to them as they are an important document of proof that tax has been paid.
Any employee that decides to leave their employment will need a P45 – Details of employee leaving form. This will detail and tax or national insurance paid for far in the year and will ensure that they are paying the correct amount of tax in their new employment.
Just like you need to keep your employees informed regarding their pay they also need to keep you up to date with any changes. To ensure that your record and the records at the Revenue are up to date the employee will need to inform you of any changes such as;
- Change in name
- Change of address
- An update in tax code – although you will receive a notice of a change of tax code there will always be that one employee that will possibly receive a change in tax code direct from HM Revenue and Customs.
Every employee is eligible for a certain amount of tax free pay. Once this threshold is reached, they must pay tax and national insurance. The amount will vary depending on personal circumstances; but you can use calculators provided by HMRC to get an idea.
National Insurance is the system in the UK where contributions made by workers and employers will count towards the cost of certain state benefits.
Both work and employer contributions are payable for a particular tax week or month.
The tax and NI should be paid to HMRC by the 19th of the month following the payment.
Automatic Enrolment was introduced as a law by the Government starting in 2012 to help people save more for retirement and encourage them to have a pension.
Auto Enrolment places the responsibility on employers, with penalties for those who fail to comply. It would be advisable for businesses to find out as soon as possible when their staging date is and allow at least 18 months prior to this date to plan for the implementation of a pension scheme.