What is Pay As You Earn (PAYE)?
HMRC uses the PAYE system to collect Income Tax and National Insurance Contributions (NIC) from employees as they earn it.
As an employer you must deduct Income Tax and NIC from your employee’s wages. You must also pay employer’s Class 1 NIC, if the employee’s pay is above a certain threshold. The employer must pay the Tax, NIC and Employer’s NIC to HMRC every month or quarter. Payments are expected by HMRC by the 19th or 22nd of the following month depending on the payment method.
At the end of the Tax Year (5th April) the employer must then send an Annual Return, this includes the P35 and P14 forms.
PAYE applies to payments that an employee receives as a result of working for their employer. These include:
- Salary or wages
- Overtime, bonuses, commission pay
- Statutory pay; sick, maternity, paternity or adoption pay
- Lump sum and compensation pay
Expenses and Benefits
There are different Tax and NIC procedures on expenses and benefits that are provided from employers to employees. In some situations you will have to operate PAYE on the value of the benefit in the same way as the above.
Examples of these expenses and benefits include: accommodation, assets, loans, bicycles, car and van, travel and fuel, Christmas parties, entertainment, gifts, health insurance, medical treatment, moving home, pension schemes, phone and mobiles and childcare. These expenses and benefits all work in different ways in terms of Tax and it depends on the facts of each individual case.
There may be additional reporting and filing requirements such as the need to complete a P11D or P9D, depending on the circumstances.
Pay As You Earn with Shahidullah & Co
We can help you with every aspect of PAYE, from registration processes, monthly pay advice, calculations on benefits and taxes to the filing requirements from HMRC. The size of your workforce is not important and we will look after each employee’s pay with our utmost attention. You will find our services easy to use and responsive to your needs.