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• Do you have employees? (click to expand)
  • Whether an individual is an employee or not in a particular situation is a question of fact depending on the terms on which he works. The question of whether an individual is employed or self employed is very important for the business “employing” him or her, as that business has to comply with the reporting requirements.
    
    In certain areas the Inland Revenue has placed emphasis on reclassifying individuals claiming to be self employed and has issued leaflet IR56 entitled “Tax: employed or self employed”. This booklet sets out the questions which should be answered to determine the problem. If you have treated someone as self employed and subsequently after a routine visit from the DSS or Inland Revenue it is clear that they were employees, then the tax and NIC which should have been paid will be assessed on you. Therefore it is important to ensure when using the services of self employed people, that they are in fact self employed.
    
    If doubt exists as to the status of an individual, the situation can be clarified with the Inland Revenue or through your accountant.
     
• The Operation of a PAYE Scheme (click to expand)
  • Upon registration the Inland Revenue will send to you guidelines on operating PAYE, National Insurance, Statutory Sick Pay and Statutory Maternity Pay (employer’s 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, which are as follows:-
    
    P11 - Deduction working sheet
    P46 - Notification to the Inland Revenue where no code has been notified to the employer and application for coding
    P46(Car) - Notification of a car provided for the private use of an employee or a director.
    P45 - Details of employee leaving
    P14/P60 - End of year return and employers certificate
    P35 - Employer’s annual statement
    P38A - Employer’s supplementary return
    P11D - Expenses and benefits
    P9D - Expenses payments and income from which tax cannot be deducted.
    
    In order to calculate the amount of tax and national insurance due by an employee, the Inland Revenue will supply you with sets 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. This can then be calculated by reference to another set of tables. The employer’s and employee’s national insurance is calculated by reference to the gross pay with a third set of tables. Special rules exist for the calculation of national insurance for directors.
    
    The tax and national insurance should be paid to the Inland Revenue by the 19th of the month following that in which the salaries were paid.
    
    In most businesses, the directors, and often the employees, have benefits which are not immediately taxed through the PAYE system, the most usual being the provision of a car and possibly fuel. Class 1A national insurance contributions are due on the taxable value of these benefits in kind and are due on the 19 July following the fiscal year in which the benefits are made available. In addition, the Inland Revenue requires on an annual basis, a form P11D (Return of expenses payments and benefits) for all directors irrespective of income and all employees receiving remuneration including the benefit in excess of £8,500. For those 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 and 5 April. Further details are given on the taxation of company cars in Inland Revenue leaflets IR132 and IR133. The Inland Revenue will still require form P11D to be submitted annually in addition to the P46 (car) forms.
     
• Your legal responsibilities (click to expand)
  • Your employees are the most important assets that your business has and it is your duty to ensure that everything is done to protect you from the many and varied hazards that can occur in the workplace. You must also bear disability legislation in mind.
    
    All employees are entitled to receive a written statement of terms and conditions of employment within weeks of commencing employment.
    
    All employees are entitled to paid holidays.
    
    Employment law contains a minefield of issues for a small business, so it is always useful to seek professional advice in order to ensure that your business doesn’t fall foul of the latest legislation.
     
• Helpful publications (click to expand)
  • The Inland Revenue publish various booklets relating to how PAYE is operated and the legislation that you have to comply with. Not only do you collect and remit PAYE to the Collector of Taxes on behalf of the Inland Revenue, you also operate the DSS’s sick pay scheme and maternity pay scheme for the DSS. You should run the PAYE scheme in accordance with the legislation and should you fail to comply then the HM Revenue and Customs will look to you for the tax or NIC you failed to deduct. This can be costly if you are unable to recover the tax and NIC from the employee.

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