Whether an individual is an employee or self-employed in a particular situation is a question of fact depending on the terms under which he or she works. When you engage someone to do work for you, you have to decide whether or not to apply the PAYE rules. It is up to you to get it right or suffer the consequences. In certain areas, HM Revenue & Customs (HMRC) has placed emphasis on reclassifying individuals claiming to be self employed. They have issued a couple of documents (ES/FS1 & ES/FS2) examining the issue of employment status. These cover 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 duties are performed,
- Terms of pay, holiday time, pension arrangements, and other benefits,
- Whether the work has to be performed personally, or whether a substitute may be supplied,
- Provision of items of equipment,
- The financial risk and responsibility for loss undertaken by the individual.
NB We strongly recommend that if you are in any doubt as to the status of an individual, ask HMRC 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.
A PAYE system is required if you have a requirement to deduct PAYE and NI from your employees. It is important to establish whether you have an obligation to deduct PAYE and/or NI, as you can still be an employer without having to operate a PAYE scheme.
Before establishing a PAYE system, it is necessary to notify HMRC by telephoning the New Employers Helpline (0845 607 0143). Upon registration, HMRC will send you a New Employer pack which includes various documentation and a CD-ROM, showing guidelines on operating PAYE, national insurance (NI), statutory sick pay, statutory maternity pay, statutory paternity pay and statutory adoption pay.
The PAYE and NI deducted from employees should be paid to HMRC 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 (i.e. by 19th of July, October, January, and April). Employers who pay electronically have until the 22nd of the month to pay. Where the 22nd falls on a weekend or is a bank holiday, payment must be received by the previous bank working day. Further details can be found here.
Electronic filing of PAYE returns
Employers are now required to file year end return forms P35, P38A and P14 electronically. The requirement that all employers will have to send their returns electronically is from May 2010.
How we can help
PAYE can be a tortuous procedure for the new business. We would be pleased to show you how to operate it properly or provide a service for the maintenance of your PAYE records. If this is of interest, please do not hesitate to contact us.
Information in this Factsheet is correct at the time of compilation but is subject to changes in legislation.