Employing staff - tax law and administration

Do I need to set up a PAYE scheme?

  • Do any of the following apply?
  • Are you making payments to employees at or above the lower earnings limit LEL ; ?
  • Does any employee have another job or pension income?
  • Are benefits paid to directors or employees?
  • Are you paying subcontractors who are, or should be, in the Construction Industry Scheme CIS?
  • Are you a limited company claiming deductions in the Construction Industry Scheme CIS?
  • If you answer yes to ANY of these questions you need to set up a PAYE scheme.
  • We can set up a PAYE scheme for you at our tariff rate .
  • If you do not answer yes to any of these questions you do not need to set up a PAYE scheme.

Other PAYE/NI administration

  • Staff who work within your business will normally be employees and may not work as self employed unless you are able to establish that their working circumstances and contractual arrangements with you can legally be established as sub contract.
  • If you employ staff you need to operate the PAYE and National Insurance procedures and have a PAYE scheme set up.
  • This will generate the need for regular returns even if the deductions are nil.
  • There is a level of tax free pay, but there are
  • National Insurance deductions above the Primary threshold PT and
  • State pensions and other benefits implications above Lower earnings limit LEL.
  • To qualify for tax free pay staff must either give you a P45 for preceding employment or complete a form P46 PAYE: Employer’s notice to H M Revenue & Customs Office and be able to state that it is their only job.
  • Directors are also employees within the same tax and National Insurance structure but this may be operated on an annual basis and directors who are shareholders may also be paid by dividends.

Contract of employment

  • All employees must have a contract of employment.
  • This does not have to be very complicated
  • but
  • Legal aspects can be complex.
  • Guidance can be found at:
  • Employment contracts

see Tax tables for the details

Contact us about employment status and payroll preparation