An Introduction to PAYE
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. Unfortunately, even the DSS and the Inland Revenue do not always agree on an individuals status.
In certain areas, the Inland Revenue and DSS have placed emphasis on reclassifying individuals claiming to be self-employed. They have jointly issued a leaflet, IR56/NI39, Employed or Self-Employed? Setting out the guidelines of employment status in the form of questions. These cover the following principal factors:

• The degree of control and supervision exercised over the individuals 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

Please note: We strongly recommend that if you are in any doubt as to the status of an individual, ask the Inland Revenue 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 have failed to deduct from the employee's remuneration.
Before establishing a PAYE system, it is necessary to notify the Inland Revenue office covering your geographical area by completing and returning form P223 (Notification to the Inland Revenue for registration).
Upon registration, the Inland Revenue will send you guidelines on operating PAYE, national insurance, statutory sick pay and statutory maternity pay (Cards CWG1), including a number of forms with which to operate the PAYE and NI systems. (See checklist below).
To help you calculate the amount of tax and NI due by your employees, the Inland Revenue 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 employers and employees NI is calculated by reference to the employees 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 the Inland Revenue by 19th of the month following that in which the salaries were paid. Employers whose average monthly payments of PAYE and NI are less than £1,500.00 {2000/2001} in total are allowed to pay quarterly rather than monthly (i.e. by 19th of July, October, January and April). This should be requested using the form P31.

PAYE checklist
Have you completed form P233 notifying the Inland Revenue of your businesses' existence and the intention to operate the PAYE system?

Have you received the following?

• Notice of your PAYE and NIC reference numbers
• Tables A and LR & B to D and NIC tables
• Cards CWG1 - Employers Quick Guide to PAYE and NICs
• Employers Further Guide to PAYE and NICs (CWG2)
• Statutory Sick Pay Manual for Employers (CA30)
• Statutory Maternity Pay Manual for Employers (CA29)
• Manual for Employers on Cars and Fuel - (Paying Class 1A NICs) (CA33)

Be sure to read these carefully.

Have you familiarised yourself with the following forms?

• P11 Deductions Working Sheet
• P14/P60 End of year return and Employers Certificate
• P11D Return of Expenses Payments and Benefits
• P35 Employers Annual Return
• P38 Employers Supplementary Statement
• P45 Details of Employee Leaving
• P46 Notification to the Revenue where no code has been notified to the Employer
• P46 (Car) Notifying car for private use

PAYE can be a tortuous procedure for the new business person.

We would be happy to show you how to operate it properly.