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PAYE

The Pay As You Earn system has been with us since 1944 and applies to all employers, large and small. In essence it is a fairly simple system whereby tax and NI contributions are deducted from employee earnings each week or month according to individual tax codes and a standard set of tables and are then paid over to HM Revenue & Customs on a monthly basis. At the end of the tax year, annual returns are submitted summarising the figures and a P60 is issued to each current employee. However, as with all tax systems, PAYE seems to grow increasingly complex every year.

The operation of a basic payroll is very simple and can be done using a payroll agency, some cheap off-the-shelf software or even your own spreadsheets if you know what you are doing. Difficulties only usually arise when unfamiliar situations present themselves, such as new starters handing you a P45 some weeks later when they have already signed a P46 or staff re-joining the payroll a few months after you thought they had left. You also need to be aware of the regulations surrounding a growing number of statutory payments and deductions, such as student loans, maternity/paternity pay, sick pay, holiday pay, minimum wage, agency workers, etc.

However, it is expenses and benefits that tend to trip up most small employers. It is surprising how many directors pay themselves round sum expense allowances or a proportion of their home telephone bill without realising these items need to go through the payroll. Some employers fail to do P11Ds for expenses even though they have not applied for a dispensation. Others don’t seem to realise that staff entertainment is a taxable benefit in excess of the £150 per head annual exemption. We have seen cases where companies reward their staff with shopping vouchers for meeting targets and fail to declare them as benefits. All meat and drink for any visiting PAYE inspector.

At Acumen we can set up your PAYE scheme and guide you through the maze so that you do not fall foul of the ever-increasing number of rules. We can also help structure your remuneration policy so that you can take full advantage of tax free benefits such as pension contributions, childcare vouchers and travel allowances, if necessary as part of a salary sacrifice scheme. We can also do your year end P11Ds and apply for dispensations on your behalf. Even better, we can help you create systems designed to capture the required information so you don’t have a major headache at the year end. The same goes for PAYE Settlement Agreements which can be very useful indeed if you do a lot of staff entertaining.

Finally, remember that all employers with 50 or more staff now have to file their year end returns on-line. Smaller employers will have to follow suit from 2009/10 onwards. From 6th April 2011, all employers are required to file P45s and P46s on-line too.

Please give us a call if you would like our help with any of this or see the information sheets below for further details.

Information Sheets Tax Tips
bulletpoint Registration
bulletpoint Staff contracts
bulletpoint Dispensations
Expenses
Check all staff expense claims and credit card bills carefully and ensure each item can be adequately explained.
Benefits
Make sure you know what counts as a taxable benefit and keep track of these carefully.
Tax codes
Watch out for mid-year changes to tax codes, in particular the W1/M1 suffix and K codes.
Directors
Ensure NI contributions are calculated on an annual basis for directors, especially if they were appointed in the current tax year.
Dispensations
Apply for a dispensation so you don't need to report any non-taxable expenses on a P11D.
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