Payroll Basics
New employer
In order to set up a Pay As You Earn (PAYE) scheme with HMRC it is necessary to contact the New Employer’s Helpline on 0845 6070143 or to complete the appropriate section of the form CWF1 (Starting in Business).
When you have registered HMRC will send guidelines on operating PAYE and National Insurance (NI). There are also certain statutory payments you may have to make from time to time which you need to be aware of. These include:
- statutory sick pay (SSP)
- statutory maternity pay (SMP)
- ordinary and additional statutory paternity pay (OSPP and ASPP)
If requested, HMRC will also send you several booklets and tables which will enable you to make the relevant deductions and payments to your employees. HMRC have some great tax and NI calculators on their website which can be useful for you – go to www.hmrc.gov.uk
Useful booklets
HMRC publish various booklets which are essential to an understanding of how PAYE works. These include:
- Tables A, B to D (or the alternative calculator method)
- The relevant NI tables
- Day to day payroll – Employer’s Help Book (E13)
- Expenses and benefits – A tax guide (480)
- What to do if your employee is sick – Employer’s Help Book (E14)
- Maternity Pay – Employer’s Help Book (E15)
- Adoption Pay – Employer’s Help Book (E16)
- Paternity Pay – Employer’s Help Book (E19)
- Collection of student loans- Employer’s Guide (IR59).
What tax do I have to deduct?
By using the tables or calculators provided on HMRC’s website, you should be able to calculate the tax and NI due in respect of your employees. The tax due for a particular employee is calculated by reference to their gross pay with a tax free pay deduction being given for their particular circumstances (using their coding notice). The amount of the tax free pay is determined using Table A. The remainder of the pay is subject to tax and this is calculated using the appropriate tax tables (B to D) or the calculator method.
Tax is generally calculated on a cumulative basis, looking at the individual’s circumstances for the tax year to date.
What about National Insurance (NI)?
NI is payable by the employee and the employer on the employee’s gross pay for a particular tax week or month, and is calculated on a non-cumulative basis. A separate set of tables is used to calculate the amounts payable. The tables used depend on the individual’s personal circumstances.
