Initial Taxation Obligations
An employer must deduct income tax and National Insurance contributions for all employees and directors. This applies to full and part-time employees and temporary and casual employees. No obligation generally arises in the case of genuinely self-employed contractors. There are exceptions, notably in many sections of the building industry where tax may have to be withheld on payments to certain contractors.
On taking on an employee, it is necessary to notify HMRC (the UK Revenue Commissioners) of the employee. It is necessary to obtain the employee’s P45 and National Insurance Number and set up payroll and identify correct deductions. Part 3 of the P45 must be sent to the HMRC. If the Form P45 has been lost or is not available or if this is the employee’s first job the Form P46 is used to set up the employment with HMRC.
If this is the first employee the company/business will need to register as an employer with HMRC. HMRC provides packages and certain details to facilitate recording employee’s details, calculating income tax and National Insurance contribution and the keeping of records.
Ongoing Tax Obligations
Employers have an obligation to provide employees with information needed to fill out their own self assessment tax return. A P60 must be furnished by 31st May after the end of the tax year.
The P60 form is equivalent to that applicable in Ireland. It certifies pay and tax deducted under PAYE in the course of the tax year, 6th April to 5th April.
A form PD11 must be used to calculate the cash equivalent value of any benefits in kind. This must be given to the employee and returned to the Revenue by 6th July after the end of the tax year. Form P45 must be given to employees leaving employment.
PD9 and PD11 relate to benefits in kind. The first form is applicable to employees or directors earning an income of less than £8,500 including a benefit in kind. Benefit in kind would include cars, medical insurance, interest-free loans etc.
It is important to ascertain whether individuals are employees or are providing services under a contract for services. There are obligations to operate PAYE deduction for employees. The mistaken categorisation of an individual as a self-employed contractor could lead to serious taxation costs and penalties.
Employees include all full and part-time workers, directors, temporary and casual workers. If a worker claims to be self-employed, it is critical to establish that they are in fact self-employed. Guidance is available from HMRC.
A new employee must provide his/her P45 and National Insurance number. If this is the first employment it will be necessary to register with HMRC. If the business is already registered as an employer it is necessary to record the employee’s new details so that the correct PAYE deduction can be made. HMRC have made available a new employer starters pack which is available free of charge.
An employer is liable to account for an employee’s income tax and National Insurance contributions under the PAYE system. By the 19th day of each month, payment must be made to HMRC for tax due in respect of the income earned in the previous month. Employees and directors are also taxed on benefit in kind so the employer will have to deduct PAYE for these benefits.
PAYE is applied to all payments including salaries, overtime, expenses and allowances, bonuses, sick pay, statutory maternity pay, lump sums, compensation. Childcare payments up to £55.00 a week are exempt subject to certain conditions.
Employees must be given wage slips, Form 45 when they leave and Form P60 by 31st May after the relevant tax year. Records must be kept of all salary payments made, deductions and National Insurance contributions. HMRC produce a Form P11 deduction sheet for calculation of deductions.
Statutory Duties of Employers
An employer has legal statutory responsibilities to employees under a range of headings. These obligations are additional to those which may arise under a contract, custom or a collective agreement. The obligations usually apply, regardless of whether the employees are full time or part-time.
The following basic responsibilities will apply:-
- Employees must be given a written statement of the main terms and conditions of their contract of employment;
- Employees must be given an itemised pay statement before each payment;
- Their working environment must be safe and secure;
- Employers must take out insurance against claims for illness, injuries and diseases;
- Employees will be entitled to a minimum level of paid holidays, a maximum length of working week and minimum rest breaks;
- If staff are sick for more than 3 days, they will be entitled to statutory sick pay;
- If an employee is pregnant or about to become a parent they will be entitled to maternity/paternity or adoption leave;
- Employees must be treated fairly and must not be subjected to discrimination.
