PAYE (Pay As You Earn) is the system that HM Revenue & Customs (HMRC) uses to collect Income Tax and National Insurance Contributions (NICs) from employees’ pay as they earn it.
As an employer, you will have to deduct tax and NICs from your employees’ pay each pay period and pay Employer’s Class 1 NICs if they earn above a certain threshold which is the National Insurance Lower Earnings Limit (LEL). For the tax year 2013-14 this is:
You pay these amounts to HMRC monthly or quarterly. If you don’t send the correct amount, or if you send it in late, you may have to pay interest.
After the end of the tax year you must send HMRC an Employer Annual Return (form P35 and forms P14). Almost all employers are required to file this online.
PAYE is applied to all the payments that an employee receives as a result of working for you, including:
Real Time Information (RTI) is aimed at improving the operation of Pay As You Earn (PAYE). Currently, if you’re an employer operating PAYE you submit an end of year return to HM Revenue & Customs (HMRC). In future each time you run payroll you’ll submit details about employee pay and deductions to HMRC.
Most employers will start operating the new PAYE process from April 2013.
When: You should do this as soon as possible or whenever your existing software provider tells you, but by 6 April 2013.
To be ready to report your payroll information each payday you must do one of the following:
When: You should start doing this now.
Before you change to PAYE in real time it’s essential that the data you hold in your payroll records is complete and accurate. You must check and, if necessary, update the data for all your employees or pensioners – certain details are essential, and must be in full and be correct or the payroll reports you send to HMRC will be rejected.
When: You should start developing new procedures now. You may need to collect and record more information from your employees than you do today in order to report your payroll information to HMRC.
You may wish to let your staff know that you may need to check some information on your payroll records.
When: You should do this now.
If you are not already registered, and you are responsible for your own payroll reporting, then even though there are changes in how you report your payroll information to HMRC, you will still need to register for PAYE Online because:
When: Start doing this as soon as your software supports the additional information required.
When you report your payroll information in real time, you will need to send certain information that you may not currently keep on your payroll system. So you will need to inform your staff and change your processes to collect this new information – although you may not be able to include it in your payroll records until your payroll software is compatible.
When: At or before the time you send your first report to HMRC.
To make your first PAYE real time payroll report successful, the data that HMRC holds on your employees must match your payroll data. When you change your payroll to PAYE in real time you will need to send HMRC information about every employee who has worked for you in the current tax year, even if they have already left your employment. So even if you don’t have to start reporting payroll information in real time until the 2013-14 tax year, it’s best to have new software and procedures in place before 6 April 2013, so that all the necessary information is already stored in your payroll system ready to be reported.
When: HMRC is inviting a number of employers to participate in a pilot during 2012-13. And most employers will begin to operate their payroll in real time in April 2013, with all employers doing so by October 2013.
Once you’ve followed all the previous steps, you will be in a position to start reporting your payroll information on time.
When: Now and at regular intervals.
Any important news relating to PAYE and payroll operation is published on HMRC’s PAYE news and updates page. There are typically at least a couple of items published every month, so checking on it as part of your monthly routine is a good idea.
If you’re an employer, when you run payroll you submit your employee:
a) deductions, such as Income Tax and National, Insurance contributions
b) starter and leaver dates if applicable
You no longer submit an end of year return (forms P35 and P14) and the starter and leaver process is simplified: you continue to give your employee a P45 when they leave but you no longer send forms P45 or P46 to HMRC – instead you must submit all starter and leaver information as part of the Full Payment Submission (FPS).
When you run payroll your payroll software gathers the PAYE information you send to HMRC. To gather this information you can use commercial payroll software or HMRC’s Basic PAYE Tools. HMRC’s Basic Tools is only available to employers with up to nine employees.
You submit your PAYE information online to HMRC. If you use commercial software or HMRC’s Basic PAYE Tools you can do this via the Government Gateway, the online entry point to government services.
You can also use an Electronic Data Interchange (EDI) if you use commercial software. EDI is a dedicated connection or a secure network more suitable for large employers with employees running into the thousands. If you want to use EDI you also need to check if your payroll software supports it.
Almost all employers must report payroll information online to HM Revenue & Customs (HMRC) when or before any employee is paid.
In addition, you may have to report certain summary information about statutory payments recovered and other deductions each pay period, and if you don’t pay anyone in a pay period. You must also report end of year information at the end of the tax year, and certain information if your PAYE scheme closes.
You’ll have to report when you provide an employee with a car, or replace or withdraw one. You may also have to report expenses and benefits.
You submit a Full Payment Submission (FPS) each time you make a payment to an employee. The FPS includes:
What you must put in this field
National Insurance Number
The employee’s National Insurance number – if you know it. If you don’t know it, don’t put in a false or temporary number – instead, leave this field blank, but then you must complete the address field.
The employee’s title: Mr, Mrs, Miss, Ms or other title.
Surname or Family Name
You must include the employee’s surname or family name.
Forename or Given Name
You must include the employee’s forename or given name.
If you don’t know your employee’s full forename(s), enter the initial(s) of the forename(s) in the initials field.
Second Forename or Given Name
You may include the employee’s second forename if they have one.
Date of Birth
You must include the employee’s correct date of birth.
You must state the employee’s current gender.
You must provide the employee’s address for every new starter or where the employee’s National Insurance number is not known. Until the National Insurance number is known you must continue to provide the employee’s address on every subsequent FPS for that employment.
The postcode if the employee lives in the UK.
If your employee’s address is outside the UK, Channel Islands and Isle of Man then you must state their country here and include their address in the address fields.
You can include a Payroll ID to make it easier for you to identify the employee, and HMRC will then use this number in correspondence with you. If the employee has two or more employments under the same PAYE scheme, you must fill in this field and use a different Payroll ID for each employment under the scheme. Also, if you re-employ a former employee in the same tax year, you must specify a different Payroll ID to distinguish this employment from the previous one.
Payroll ID Changed Indicator
Use this field to report that the Payroll ID has changed.
If the Payroll ID has changed since the last FPS tick the ‘Yes’ indicator and enter the old Payroll ID as well as the new one so that it’s clear that this is the same employment.
Old Payroll ID for This Employment
If the Payroll ID used in this FPS has changed since the last submission, you must put the previous one here.
Irregular Employment Pattern Indicator
‘Yes’ if the employee is not paid on a regular basis for example:
HMRC will check if an employee has not been paid for a certain period of time and will treat them as having left that employment. Setting this indicator on every FPS submitted for that employee avoids that happening.
Employer information you must include in every FPS and EPS (Employer Payment Submission).
What you must put in this field
HMRC Office Number
The HMRC office number. This is the first part of your Employer PAYE reference and is three digits. You will find this number on a P6/P9 notice of coding or your Annual/Budget letter
Employer PAYE Reference
Your Employer PAYE reference number. This is the second part after the slash. You will find this number on a P6/P9 notice of coding or your Annual/Budget letter.
Accounts Office Reference Number
Your Accounts Office reference number – this can be found on your P30BC ‘Payment booklet’ or P30B ‘Paying electronically’. It will be in the format 123PA00012345 (this reference is only an example and should not be used to make a submission).
Related Tax Year
The Income Tax year that this report relates to.
What you must put in this field
Enter your Self Assessment reference (SA UTR) if applicable – for example, if you are an employer who is a sole proprietor or a partnership.
Enter your Corporation Tax (COTAX) reference if applicable – for example, if you are a limited company.
Nr of Employees
RTI Submission Date
Accounts Office Reference
There are other submissions you may also make. These include:
large PAYE schemes with over 250 employees,
Getting your employee details ready
By ensuring that employee details, such as full name, home address, date of birth, National Insurance number and gender are correct before the new PAYE process is introduced, you will:
The best way to check these details are correct is to verify them against a birth certificate, passport, driving licence or official document from HMRC or DWP (Department of Work and Pensions).
Information provided by HMRC.gov.co.uk
Target Accounting will organize PAYE RTI training sessions at our office.
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