Payroll taxes and wages

Whatever form of business you operate, if you are going to have employees then you will have to contend with payroll and payroll taxes.

Helpful publications

The Inland Revenue publish various booklets on how PAYE is operated and the legislation that you have to comply with. Not only do you have to collect and remit PAYE to the Inland Revenue you also operate the DSS's sick pay scheme, maternity pay scheme and working family tax credit (WFTC). You must run the PAYE scheme in accordance with the legislation and should you fail to comply then the Revenue will look to you for NIC or Tax that you have failed to deduct. You must also adhere to the minimum wage and Working Time Directive concerning the hours employees are permitted to work.

Do you have employees?

The question of whether an individual is employed or self employed is very important for the business, as the business has to comply with the reporting requirements.

The Revenue has placed emphasis on reclassifying individuals claiming to be self employed and has issued a leaflet IR56 entitled "Tax: employed or self employed" to help. If you have treated someone as self employed when after an inspection it is proved that you should have classed them as an employee then the Tax and NIC that should have been paid will be assessed on you. Therefore it is important to ensure that when using services of self employed people that they are in fact self employed.

If in doubt you should check either with us, or if necessary the Inland Revenue.

The Operation of a PAYE scheme

Upon registration the Inland Revenue will send you guidelines in operating PAYE, National Insurance, Statutory Sick Pay and Statutory Maternity Pay and WFTC (employers pack).

Included will be a number of forms with which to operate the PAYE and NIC system. You should familiarise yourself with and have supplies of these forms, as follows:

P11 Deduction working sheet
P46 Notification to the Inland Revenue (where there is no tax code for the employer and a code is required)
P46 (Car) Notification of a car provided for the private use of an employee or Director
P14/60 End of year return and employers certificate
P45Details of an employee leaving
P35Employer's annual statement
P11D Expenses and benefits
P38A Employers supplementary return
P9D Expenses payments and income from which tax cannot be deducted.

In order for you to calculate the correct amount of tax and national insurance the Inland Revenue will supply you with a set of tables. By reference to the "tax free" tables and an employees tax code you will be able to calculate the amount of salary which is not subject to tax.

The difference between this figure and the gross amount is the employee's taxable pay. The employer's and employee's National Insurance is calculated by reference to the gross pay with a third set of tables.

Tax and National Insurance deducted should be paid to the Inland Revenue by the 19th of each month following the month in which the salaries were paid.

In most businesses there are employee benefits which are not taxed through the PAYE system, the main benefit being a car and possibly fuel. Class 1A National Insurance contributions are due on the taxable value of these benefits in kind and are subsequently due on the 19th July following the fiscal year in which the benefits are made available. Additionally the Inland Revenue requires a P11D form to be submitted annually declaring all expense payments and benefits for all Directors and irrespective of income and all employees receiving remuneration including benefits in excess of £8,500. For employees earning less than £8,500, but who receive expense payments and benefits, a form P9D is required. New rules were introduced for cars available for private use after 5 April 1994. These require completion of a quarterly return on form P46 (car) on 5 July, 5 October, 5 January, 5 April.

We can help

Mitchells provides to many of our clients a payroll bureau service which ensure all payroll and PAYE records are processed in an efficient and cost effective manner. We can then submit the company's year end returns on line. In addition we can prepare other returns such as P11Ds and P46 (cars).

For more information, call us on 0113 274 3496 or email Clare Bruce at info@mitchellsgroup.com.

« Back | Next »