Starting in Business - Taking on Employees

If a new business takes on employees, it is important that the employer appreciates the burden of complying with the PAYE regulations.

Complying with PAYE

Employers must deduct income tax and employees’ National Insurance from salaries, and account for this to the Collector of Taxes, together with their own employer’s National Insurance contributions:

• Amounts must be paid to the Collector 14 days after the end of the tax month, i.e. by the 19th day of the following month;
• Interest can be charged on amounts paid later than 19 April following the tax year;
• If the employer fails to collect the full amount of PAYE and national insurance that is due, the outstanding amount may be collected from the employer and not necessarily from the employee;
• If the monthly payments of tax and national insurance average less than £1,500 per month, employers can instead apply to make quarterly payments to the Collector of Taxes;
• Returns of pay and tax have to be made by 19 May following the tax year, with automatic penalties for noncompliance. Returns of benefits in kind (P11Ds) are due by 6 July and penalties can be levied for lateness and errors, up to £3,000 for each incorrect P11D;
• As HMRC conducts PAYE audits, any errors made by the employer are likely to be discovered eventually;
• Before taking on employees, a prospective employer should obtain HMRC’s publications ‘New Employer’s Starter Pack’ and ‘Employer’s Further Guide to PAYE and NICs’.

Self-employed labour

One way to avoid PAYE and NIC regulations is to use self-employed labour, but this can involve complications. HMRC will want to be satisfied that the self-employed people are indeed genuinely self-employed, and not employees in another guise. Employers may find it very difficult to convince HMRC that people are self-employed.

If HMRC thinks that people are not selfemployed, then employers could have to pay a considerable sum of back income tax and national insurance which should have been deducted under the PAYE system. This amount can be recovered from the employee, but it is often very difficult to do so.

If there is any doubt as to whether a potential recruit should properly be treated as employed or self-employed, employers should contact their Tax Office and provide the facts to the Inspector nominated to give a speedy ruling.

Spouse as an employee

It is normally worth ensuring that both husband and wife have some earnings so as to make use of the personal tax allowances. For example, many self-employed business people pay their spouses a salary for help in running the business.

• It is normally possible to justify an annual salary of say £5,000 for part time work answering the telephone, making appointments, helping with administration, etc. but you must make sure that you the spouse is paid at least the minimum hourly wage;
• HMRC will insist that the salary is actually paid to the spouse;
• Unless the spouse has other income, the salary would be covered by his or her personal allowance and will therefore save tax;
• It is important to keep the salary below the NIC threshold (check with us for the latest figure) to avoid having to pay NICs;
• Where spouses are heavily involved in the business, it might be better to bring them in as partners so that they can share in the profits without the need to apply PAYE.

• Here at Geoffrey Cole & Co., Chartered Accountants, Reading, Berks we have an extensive list of online resources available for FREE DOWNLOAD in our unique Info Vault.

• It is extremely important for all businesses to note that new and amended legislation may become applicable at any time.

Geoffrey Cole & Co Chartered Accountants & Registered Auditors offer a service that both encompasses and extends beyond the provision of traditional tax, auditing and assurance services. We believe in the value of an integrated approach to your financial needs and view a substantial part of our role as being that of business adviser. In this capacity, we work alongside you, helping you identify your immediate and long-term business objectives and plan for them accordingly. Communication is key and we maintain regular contact with clients in relation to their own affairs. Our IT capabilities are extensive: wherever possible your documentation will be prepared and processed electronically. Furthermore, as SAGE software suppliers and trainers our expertise with their business packages is second to none.

Our years of experience are reflected in the range of services we provide and our extensive client list.

Managing Director Geoff Cole says:
"Our aim, as Chartered Accountants, is to help you to achieve your personal goals and aspirations. Yes, we can deal with the compliance work such as audits, tax returns and the preparation of accounts but these are not the area of our principle focus"

“It’s about you.”