Getting real with PAYE

TaxOn 6th April 2013 the PAYE system changes to a ‘real time information system’ (RTI).  Under RTI  employers are required to update HMRC during the year about changes to staff earnings – so that people on earnings-related credits are not paid out the wrong amount.  This will include benefits and bonuses.

Here are the key points:

  1. Get  employees’ NI numbers on their first day of work with you (if not earlier).
  2. If you use a payroll bureau/agency, your payroll cut off date may be earlier in the month as they will need to collect and process more information. Make sure you note the new  deadlines they send you.   Give yourself time to collect and report on the new information.
  3. If you run your own payroll, make sure your software is up to date with the latest versions – check with your software provider for when “real time compliant” upgrades are available.
  4. If you are still on a manual payroll system, take advice on how to comply. It may be time to get a payroll bureau or some software.

New starters

  1. You’ll need the employee’s National Insurance number. If the paperwork supplied by the employee (P45 etc) does not give you this information, you can get HMRC to do a trace for the number – the form to do that is available from this HMRC’s website
  2. You have to check eligibility to work in the UK.  There is a help page setting out which documents you need to see (and copy) – available online.   If you need to use the new employee’s passport for this check, you will also need to give the passport number to HMRC.
  3. You will need employees to sign a declaration stating:
  • Whether this is their first job during the tax year
  • That this their only job OR
  • Whether they have another job or pension

Advantages

If RTI works employers and employees will be paying the right tax under PAYE and not building up liabilities for underpaid tax that need to be settled the following year (or paying too much tax and having to claim a rebate).

Top tips

If an employee is wrongly classified as self-employed for PAYE purposes, liabilities will be accruing and will need paying later.   You need to be  confident that self-employment is appropriate.  Just calling someone self-employed isn’t  enough – you have to meet the right tests based on the real way you work with them.

HMRC are on to how much tax this can save employers/employees and it is only a question of time before they start auditing some of the more dubious arrangements.

The tax goal posts have moved.    What seemed like a good idea five years ago can be inappropriate today – review your self-employed and freelance arrangements.

From the employer’s point of view, a newly appointed employee now has to serve two years before they qualify for unfair dismissal rights, so employment is an increasingly more flexible option.

For tax advice, please speak to your accountant.  More technical information is available from HMRC.

For a free talk on how employment law includes freelance workers check our KoffeeKlatch website.

If you have out of date arrangements or contracts, now is the time to review them and get it straight – talk to us.

Irenicon Ltd, Airport House, Purley Way, Croydon CR0 0XZ
Tel: 08452 303050 Fax: 08452 303060
Email: advice@irenicon.co.uk Website: http://www.irenicon.co.uk

4 Comments

Filed under contract, Freelance Workers, pay

4 responses to “Getting real with PAYE

  1. Fantastic post however , I was wanting to know
    if you could write a litte more on this subject? I’d be very thankful if you could elaborate a little bit further. Bless you!

  2. Teri Amanda Oliver

    I was wondering if its possible to get help from benefits agency if working a commission only based job full time, as commission only means I may make nothing at all, just iv been offered a telesales commission only based job and want to be in work so dont want to turn this down however if I take the job I would like to make sure I can definitely live, im 22years old from Stockton-On-Tees, nort east, teeside, and live on my own with no family or friends to help me thanks alot for reading THANKS TERI X

    • I am not clear if you are being offered the commission only work as an employee or on a ‘self-employed’ basis. Either way, the chances are you will be a ‘worker’ which means you are entitled to National Minimum Wage. Unless they are making you set up your own personal payroll company or actively encourage you to send substitutes, this is highly likely.

      Ask what the pay interval and commission calculation points are. EG do they pay weekly or monthly and how often do they calculate the commission? For the purposes of National Minimum wage, the maximum pay interval is a month. So in theory you should get at least that at the end of each month.

      Ask to see a copy of the contract they want you to be on. You need to know if this is on when the customer pays, or when you sign up the sale, what happens about refunds etc

      Ask what type of training you are going to be given, for how long

      Find out if they are offering to pay you for your time whilst training or whether this is supposed to be at your expense.

      Find out what the arrangements are about expenses – you may find yourself funding weeks if not months of travel expenses (if you travel) before they return any money to you.

      Check whether the organisation is running some kind of scam (google them) as some organisations never pay anyone – they just make you work a few weeks or months at your own expense and let you go.

      Check whether you are entitled to working tax credits http://www.revenuebenefits.org.uk/tax-credits/transition-to-universal-credit/overview-of-universal-credit/self-employment/. This is a link to people who are self employed. You can google the right page for employees – though I think it is highly likely they are going to send you a -‘self-employed’ contract. Be aware of the fact they can take weeks if not months to pay you anything. If you are considering coming off job seekers (or being made to) you will need a plan to get you through the gap in cash.

      A lot of people find they make absolutely no money on commission only sales and have a hard time getting even minimum wage out of their employer. You may be lucky, but from my own experience organisations that can’t clearly and swiftly answer these questions are not likely to be places where you will thrive.

      Your local Citizens Advice Bureau http://www.stockton-cab.co.uk/ can help you free of charge about benefits – it is complicated since there are so many and it is not my specialist area. This link gives you how to find them.

      Be careful how you deal with this as if you are unemployed and turn down an offer you may find you are in trouble in terms of job seekers allowance. Please talk to the CAB before you talk to the Job Centre.

      Hope this helps.

      Good luck. It is never easy getting started, but if you do turn out to be good at sales (not everyone is) it is a great way to earn a living..

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